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Copyright ^ 0 _ 


COPYRIGHT DEPOSIT 










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THE NEW 

C A PITA LIS M 

By 

S. A. BALDUS 


CHICAGO 

The O’Donnell Press 
621 Plymouth Court 
1923 






Copyright, 1923, by S. A. Baldus. 
All rights reserved, including that of 
translation into foreign languages. 


APR 23 '23 


©C1A705052 

*Vv t 




PART I 

The Established Order 

Page 

Chapter I. The Great Unrest. 7 

II. The Clash of the Classes. 14 

III. The New Division . 22 

IV. The Investors and the Non-Investors. 28 

V. The Different Kinds of Investors. 39 

VI. The Capitalistic Entrepreneurs. 48 

VII. The Supreme April Fool Joke. 61 

VIII. The Principle of Inflation . 72 

IX. The Volume of Inflation. 83 

X. The Capital Crime of Overcapitalization.... 95 

XI." The Railroads: An Object Lesson in Over- 

capitalization . Ill 

XII. The Stock Market . 128 

XIII. Our National Wealth. 143 

XIV. The National Income . 162 

XV. “ Capital, Labor and Brains''. 179 

XVI. The Shrinking Dollar . 191 

XVII. The American Standard of Living. 203 

XVIII. Mane-Tekel-Upharsin. 218 

PART II 

The New Order 

Chapter XIX. “Where There's a Will—". 245 

XX. “—There's a Way"..265 

XXI. Our Principles and Policies. 283 

XXII. Who is “The Public"?. 295 

XXIII. The Science of Wages. 309 

XXIV. The Philosophy of the Quantity Wage. 324 

..-"XXV. The Genesis of Wages and Living Costs. 341 

XXVI. The Cost of Living Basis of Wages. 356 

-XXVII. Wages Under the New Capitalism. 373 

XXVIII. The Cost of Living under the New Capitalism 388 

XXIX. “Out of the Frying Pan into the Fire".400 

XXX. Economic Changes and Adjustments.415 

•—-XXXI. What About the Farmer?. 434 

XXXII. Where will the Farmer Stand?. 449 

XXXIII. No Political Party. 460 

XXXIV. The Concluding Chapter. 472 

A Postscript . 483 



































First Edition, April, 1923 


PART I 

THE ESTABLISHED ORDER 




f 


























CHAPTER I 
The Great Unrest 


F OR nearly ten years it has been dinned into our ears 
that there is “industrial unrest,” not only in the 
United States but throughout the world. There is: 
but since I have not studied political, social, industrial 
and economic conditions in Europe at close range, and 
have only such knowledge of them in other parts of the 
world as may be obtained from a reading of books, maga¬ 
zines and newspapers, I shall exclude Europe and the rest 
of the world from the present discussion and confine 
myself entirely to the United States,—surely a large 
enough territory and with enough economic problems to 
enlist the best energies of an army of avowed students. 

“Industrial unrest” is supposed to be conspicuous in 
the United States. Books have been written about it, arti¬ 
cles without number, and countless editorials. Have there 
not—ever since we entered the European war and even 
after the armistice—been hundreds of strikes, and threats 
of strikes, and demands for wage increases, and protests 
against wage cuts? And many other manifestations of 
industrial disorder, such as Court orders, decisions and 
injunctions; Industrial conferences, boards, and commit¬ 
tees, to say nothing of “red plots,” most of which latter, 
however, I have always held, existed only in certain official 
minds. Even though you were to enumerate many more 
evidences of unrest, and cite many additional instances of 
tumult, I today maintain that it is not industrial unrest 
that is afflicting the United States, but something deeper, 
something more sweeping, something more portentous—a 
social and economic disease—contagious—fatal if not 
quickly checked, and likely to become epidemic and end 


7 




8 


The New Capitalism 


tragically. The existence of the disease cannot be denied; 
its gravity must not be underestimated; its symptoms must 
not be ignored. 

Clearly if a remedy is to be applied it is important 
that we take a correct diagnosis, for without a proper diag¬ 
nosis no cure is possible. Or, having the right remedy, 
care must be taken lest we give the medicine to the wrong 
patient. Surely it is the part of wisdom to honestly en¬ 
deavor to discover the causes of the disorder and to eradi¬ 
cate them, if possible. 

In what street and in which house, then, does our patient 
live, and what is his name? What are his ailments, and 
are they organic, or only symptomatic of the disease from 
which he is suffering? Is he in danger of getting w T orse, 
or is there a likelihood of his gradual convalescence and 
ultimate recovery? 

The Spendthrift Workers 

It is noteworthy that all through the years 1918 and 
1919, and the first half of 1920, when the industrial unrest 
was supposed to be at its height, industrial workers were 
better off than ever before; at least they were being paid 
better wages and were experiencing less trouble in having 
their demands, with or without strikes, satisfied. In fact, 
so well off were the industrial workers that they were 
accused of spending their newly acquired “riches” like 
drunken sailors. Almost daily we were treated to moral¬ 
izing editorials anent the wanton extravagance of the wage 
earners, and the orgy of reckless spending into which the 
industrial workers had plunged themselves. We were told, 
not once but a hundred times, that common laborers were 
buying silk shirts and automobiles; their wives sealskin 
coats, diamonds and pianos, proof of the hysteria of 
spending. 

The Silk Shirt Era 

Some writers on economic subjects spoke, and still speak, 
of the silk shirt era, which was supposedly at its height in 


The Great Unrest 


9 


1919. Common laborers in mines and mills, we were told, 
were buying silk shirts, not one or two at a time but in half 
dozen and dozen lots, paying ten, twelve, and fifteen dollars 
apiece for them, and wearing them to their work, perhaps 
even going to bed with them on, for many of them worked 
twelve hours a day and seven days a week. I have always 
taken these “silk shirt” reports with a grain of salt. I 
hold that they were grossly exaggerated. Most of those 
who wrote about the silk shirt laborers in mill and mine, 
never brushed shoulders with one of them. It is quite 
certain that they troubled themselves not at all to investi¬ 
gate the subject. They gave us no proof, no statistics. 
We had nothing but their unsupported word, based on 
fabricated rumor and hearsay reports. 

Gary, Indiana, is a typical steel mill town. The steel 
plants there employ, let us say, 22,000 workers, most of 
them foreigners. What percentage of these 22,000 steel 
workers bought silk shirts in the height of their economic 
prosperity? What percentage of them wore silk shirts to 
their work? Who can tell? Who has made an honest in¬ 
quiry? In the absence of an investigation, or any official 
report, let us say ten percent, or 2,200 of the workers in 
the Gary steel mills, adorned their grimy bodies with ten 
and fifteen dollar silk shirts. What does that prove? It 
proves, if anything, that among the 22,000 there were 
2,200 fools—ten percent; which I contend is no greater 
percentage than can be found in any other economic group. 
Is it fair to include the other 19,800 non-silk-shirted Gary 
steel workers in your sweeping indictment of the folly and 
extravagance of a few—whether ten, twenty or more per¬ 
cent—of the total number? It would at least be decent to 
so word your moralizing comments—if moralize you must 
—that the offending few shall be set apart from the many 
who have not offended—the economic goats separated from 
the sheep. 

I am wondering, as I write, whether any economic 
writer harping on the “silk shirted” wage earner—at 
Gary, let us say—has ever gone to the trouble of learning 


10 


The New Capitalism 


from the merchants at Gary how many silk shirts were 
actually sold by them to the workers in the steel mills. 
But that wouldn’t be conclusive, for no doubt many of 
them made their purchases in Chicago. And I am won¬ 
dering, too, just how much of an increase or decrease in 
savings accounts the banks of Gary could show for the silk 
shirt era of prosperity during and even after the war. 

The Miracle of Spending and Hoarding 

A few months after the armistice, the same papers that 
published doleful comments anent the silk shirt extrava¬ 
gance of the mine and mill and other industrial workers, 
many of whom were foreigners, also complained that thou¬ 
sands of them were going back to their native lands, taking 
with them millions of American money. Precisely how 
they could spend millions in reckless extravagance, and 
also save and hoard millions, has never been satisfactorily 
explained. A man cannot be sick in bed, crippled with 
rheumatism, and run a Marathon race at the same time. 
Either the moralizing commentators were guilty of exag¬ 
gerating the reckless extravagance of the industrial work¬ 
ers, or the economic diagnosticians were wrong when they 
decided that the patient was suffering from unrest. 

Barking TJp the Wrong Tree 

There would be more justification for the cry ‘‘industrial 
unrest ’ ’ today than there was four or five years ago! All 
through 1918 and 1919, and the first six months of 1920, 
everybody was working, and the wages of many were ad¬ 
mittedly above the level of former years; while in 1921 
four and a half millions of industrial workers were out of 
work, or working only part time. Many mills and factories 
closed down entirely. With that singular mental obliquity, 
which seems to be a national characteristic, we put up the 
red card of danger on every door when the disease was 
endemic, and now that it is epidemic we take it down from 
all doors. 

The fact is that when we said there was industrial unrest 


The Great Unrest 


V 


11 


there was less of it than the usual amount among the indus¬ 
trial workers. But there was—and we said little or noth 
ing about it— unrest —not so much among the industrial 
workers as among the mass of the people — men and 
women who cannot be called industrial workers—millions 
of men and women who have had little or no increase in 
their wages or salaries, and who are finding it increasingly 
difficult to make ends meet. Many of them have been com¬ 
pelled to abandon their accustomed mode of life, and to 
adopt a lower standard of living. 

When you speak of industrial unrest there arises the 
vision of discontented workmen, turbulent toilers—gener¬ 
ally organized—clamorously engaged in a struggle for more 
wages, fewer hours, better working conditions or what not; 
or else contending for some principle, or demanding some 
right or concession, or opposing some real or fancied 
aggression. The mind does not include in the picture the 
average non-industrial working man and woman, working 
for an inadequate wage or salary, helpless, unorganized, 
without leaders and without spokesmen. Yet the unorgan¬ 
ized, non-industrial workers outnumber the organized in¬ 
dustrial workers. 

Among those unorganized, unchampioned millions of 
men and women, their grievances ignored and all redress 
denied them, there is and has been for years, bitter unrest, 
and a more poignant discontent than among the organized 
industrial workers. Therefore I insist that “industrial 
unrest’’ does not fairly state the case. You must amplify 
it to include the whole population, or rather, that vast 
portion of it which has no other income than is derived 
from wages or salaries. Speak not of industrial unrest 
only. Call it national unrest—call it universal discontent 
—not industrial in character so much as social and eco¬ 
nomic. 

Why beat around the bush? Why predicate about a 
comparatively small group of industrial workers only, 
what is easily predicable of the majority of the people— 
both industrial and non-industrial workers? I have scant 


12 


The New Capitalism 


patience with these wrong economic diagnoses. I chal¬ 
lenge every statement that contains ten percent of truth 
and is ninety percent a lie; statements that are clearly 
misstatements based on one part fact and nine parts fabri¬ 
cation. 


The Danger Symptoms 

Industrial unrest? No, something deeper, something 
more fundamental, something more terrible, is gnawing 
at the vitals of our nation. Those who prate of industrial 
unrest when the whole country is in social foment and 
economic upheaval, are but “fiddling Neros” or arrant 
knaves. The industrial part of the unrest is only the 
rumbling of the coming disaster—a faint sound made by 
an exasperated group, audible only because they are partly 
organized; of workers whose occasional manifestation of 
discontent is but the feeble stirring of an outraged sense 
of justice that is slowly corroding the hearts and embit¬ 
tering the minds not only of industrial workers but a tre¬ 
mendous majority of our nation; of wage earners whose 
spasmodic turbulency is merely an echo of the pent up 
fury that is harrowing the very souls of millions of men 
and women in the United States. These periodical labor 
turmoils are the reverberation of fierce passions raging 
within bruised breasts; gestures of protest against wrongs 
they seem powerless to redress; a chorus cry of rage 
against conditions from which they seem not yet to have 
discovered the logical way to escape, or, to adjust. 

Economic Quacks and Nostrums 

No! ye exalted economic doctors in subsidized colleges, 
ye learned professors in endowed universities, ye silver- 
tongued after-dinner speakers, and mercenary apologists 
for the Capitalistic System; ye hired quacks of plausible 
speech, and self appointed analysts of the ills afflicting the 
body social and economic; ye deluded editors, officious 
writers, and obsequious scribblers;—ye who would have 
the world believe that the trouble is in the foot, when it 


The Great Unrest 


13 


is the heart—a heart no longer merely functionally dis¬ 
turbed but organically diseased and beating weak and 
slow—I tell yon your diagnosis is false, and you are de¬ 
ceiving yourselves rather than the public. The industrial 
unrest of which you speak is only one of the symptoms of 
a national malady—a virulent disease—a malignant disease 
which cannot be cured with salves, lotions and unguents, 
but calls for the skilful use of the knife. 

The Patient Must Cure Himself 

The case stated in its nakedness is simply this: There 
is today, and there has been for more than a decade of 
years past, economic unrest and continuously growing 
social discontent among eighty percent of the population 
of the United States—industrial and non-industrial toilers 
—working men and women, organized and unorganized— 
and their families. These eighty million people; these 
sixteen million families, have neither leaders nor spokes¬ 
men ; no representatives of their case, no defender of their 
rights, no pleader of their cause. 

I have appointed myself their advocate and their cham¬ 
pion. This book is written for the purpose of arousing 
them to the full realization of their present condition, 
bound to grow worse unless they bestir themselves promptly 
and organize themselves into a unified group. I exhort 
them to combine their scattered forces into a formidable 
power. I urge them to constitute themselves into a mighty 
army—a solid phalanx; to be no longer a despairing horde 
but an embattled host, whose cause is just, whose might is 
the right, and whose strength, united, is invincible. 


CHAPTER II 


The Clash of the Classes 


I N the older European countries society is generally 
divided into classes. This division, which is both social 
and economic, is accepted by all concerned without 
question or cavil. In some of the countries, particularly 
England, the class system has—as is inevitable—degener¬ 
ated into a caste system not unlike that which has fastened 
its throttling death grip upon India. Kenneth L. Roberts, 
in an article in The Saturday Evening Post (February 19, 
1921), writes: 

“H. G. Wells has said that there are more than two 
hundred classes to English society. Some of the delicate 
distinctions between different English classes are such as 
to give many persons a slow, shooting pain at the base of 
the brain. There is a distinction, for example, between a 
graduate of Oxford University and a graduate of London 
University. The latter belongs to a lower class than the 
former. There is a distinction between an Episcopalian, 
or Church of England clergyman, and a Baptist or Con- 
gregationalist or Presbyterian minister. The Episcopalian 
belongs to a higher class than the Nonconformist minister. 
Workingmen are divided by rigid class distinctions. Cer¬ 
tain trades are classed far higher than other trades. The 
barrister, who argues a case for a client, is in a much 
higher class than the solicitor, who approaches the bar¬ 
rister for the client and persuades him to accept the case. 
If a member of the so-called upper classes undertakes to 
sell stoves or cheese or canned goods, he falls from the class 
he originally occupied to a lower class. If, however, he 
chooses to sell automobiles, stocks and bonds, or land, he 


14 




The Clash of the Classes 


15 


remains in his original class and is not lowered. These 
three pursuits are exempt from the stigma which attaches 
to trading in all other commodities. . . . There is 

class distinction in England, and the distinction is recog¬ 
nized and acquiesced in by every class. The lower the 
classes the more rigid the distinctions.” 

Caste 

Need I emphasize that this is no longer class distinction, 
but that terrible curse called caste. In Italy, France, Ger¬ 
many, Russia, and other European countries, there are, 
as far as I have been able to discover, fewer divisions and 
less invidious distinctions than in England, especially 
among the humbler social or economic contingents. What¬ 
ever of caste is observable seems to be confined to the 
upper laminas, rather than to the lower strata of society. 

Arbitrary Class Divisions 

But whatever the varying divisions and sundry subdivi¬ 
sions in the different countries may be, broadly speaking 
society everywhere has for several centuries been appor¬ 
tioned into three great groups, or classes, namely, the 
upper class, the middle class, and the lower class. It is to 
be noted here that there is no uniform rule or standard; 
the class division is purely arbitrary. For example, speak¬ 
ing of France—the celebrated M. Quesnay, physician to 
the court of Louis XV, divided society into three classes: 

“The first , or productive class, by whose agency all 
wealth is produced, consists of the farmers and labourers 
engaged in agriculture, who subsist on a portion of the 
produce of the land reserved to themselves as the wages 
of their labour, and as a reasonable profit on their capital; 
the second, or proprietary class, consists of those who live 
on the rent of the land, or on the nett surplus produce 
raised by the cultivators after their necessary expenses 
have been deducted; and the third , or unproductive class, 
consists of manufacturers, merchants, menial servants, &c., 
who subsist entirely on the wages paid them by the other 


16 


The New Capitalism 


two classes; and whose labour, though exceedingly useful, 
adds nothing to the national wealth. ’ ’ 1 2 

Henry Parkinson, writing in 1913, divides society in 
England on an entirely different basis. “Roughly speak¬ 
ing, ’ ’ he says, ‘ ‘ the upper class will include the aristocracy, 
nobility, the greater landowners, the capitalist financiers. 
The middle class will comprise (1) producers (small land- 
owners and tenant farmers, the yeoman class, and the 
captains of industry) ; (2) distributors, like merchants 
and retailers; (3) the great services (ministers of religion, 
teachers, doctors and nurses, lawyers and clerks, officers 
of army and navy, the civil service). By the lower class 
is understood the vast number of those who live mainly 
by the fruit of their labour and are without landed or 
other capital. ’ 12 

The important thing to remember here is that there is 
no uniformity as regards class divisions; each writer fol¬ 
lows his own particular notions, or classifies society accord¬ 
ing to the accepted standards of the day, or the prejudices 
of the country in which he lives. Certainly there is noth¬ 
ing scientific about such classifications. 

No Glasses in the United States 

But I am not particularly concerned at this moment 
with any country except the United States. Here at home 
I contend that there are no classes, save for the conve¬ 
nience of the sociologist. I say this with the full knowledge 
that all our writers on economics habitually, and quite 
erroneously, indulge in class distinctions, and prate with 
turgid eloquence of “class consciousness.’’ They have 
divided us, too, into the three great classes—upper, middle 
and lower. I do not know whether any have ventured to 
say just who is to be included in each of these three 
classes, but if so, it was without troubling themselves about 
stating the essential qualifications or distinctive charac¬ 
teristics of each class. 


1 “The Principles of Political Economy,” by J. R. McCullough. 

2 “A Primer of Social Science," by Henry Parkinson, D.D. 



The Clash of the Classes 


17 


I do not feel disposed at this time to quarrel with these 
writers for their lack of definiteness when writing about 
their upper, middle and lower class divisions; but I take 
issue with them when they transcend the limits of mere 
classification and proceed to make distinctions which are 
not only arbitrary and unwarranted, but undemocratic 
and unscientific. 

Otto H. Kahn, in an article published in The Annalist 
(January 3, 1921) speaks of the so-called middle class as 
composed of “the men and women living on moderate 
incomes, the small shop keeper, the average professional 
man, the farmer, etc.” And then he continues to say that 
the welfare of these “is just as important to the commu¬ 
nity as the welfare of the wage earner.” 

By what right does Mr. Kahn segregate the wage earn¬ 
ers? By what right does Mr. Kahn differentiate between 
those whose maintenance is derived from wages, and those 
who receive a salary, or whose income, the equivalent of 
a wage or salary, is derived from some other pursuit, or 
source ? 

The middle class may indeed be composed of “the men 
and women of moderate income,” but I insist that it 
doesn’t make a particle of difference whether their mod¬ 
erate income is derived from wages, salary, or a small 
business, or the practise of a moderately lucrative profes¬ 
sion. I contend that the wage earner, whose “moderate 
income” is, say, $1,000 or $1,500 a year, has as much right 
to consider himself as belonging to the middle class as has 
the butcher or the baker, or the lawyer, or farmer having 
approximately the same amount of income. 

Confusing Society with Economics 

The dictionary defines the middle class as “the class 
that occupies an intermediate position socially. ” The 
middle class, therefore, is primarily a social group; but 
that is not the sense in which Mr. Kahn uses the term. 

The dictionary also says that the “trading class” is the 
middle class. Who constitute the trading class? Surely 


18 


The New Capitalism 


in the United States tradespeople do not constitute the 
middle class, for, according to the United States Census 
Statistics the following are listed under the designation 
Trade: bankers, brokers, money-lenders; clerks in stores; 
commercial travelers; delivery men; insurance agents and 
officials; laborers in coal and lumber yards, warehouses, 
etc.; laborers, porters, and helpers in stores; real estate 
agents and officials; retail dealers; salesmen and sales¬ 
women; wholesale dealers; importers and exporters, etc. 

J. P. Morgan is in the trading class; so is Barney 
Baruch; so is John D. Rockefeller; so is Julius Rosen- 
wald; so is Otto H. Kahn. But J. P. Morgan, and Barney 
Baruch, and John D. Rockefeller, and Julius Rosenwald, 
and Otto H. Kahn—traders though they be—are distinctly 
not of the middle class, socially speaking. Emphatically 
they are not of the middle class economically speaking. 

By the exclusion of the w T age earner from the middle 
class Mr. Kahn arbitrarily places the men and women who 
work with their hands in the lowest class. That there are 
some—and I care not whether you make it ten or twenty 
percent of the total, or more or less,—working for a wage, 
or perhaps too lazy to work at all, and who may be put 
into the lowest class socially considered, I freely concede. 

But, on the other hand, there is a considerable number 
of idle and lazy rich—men and women—“who toil not, 
neither do they spin”—who in all their lives have never 
contributed aught to the sum and substance of human 
happiness; who have produced nothing; who have added 
nothing to the wealth of the nation; who render no serv¬ 
ice to humanity; who are, plainly speaking, social barnacles 
and economic parasites—where will Mr. Kahn place these? 
In the upper, or the middle, or in the lower class? Or 
will he put them in a class by themselves, lower even than 
his classification of the wage earners? 

Class Contradictions 

If there were only two social groups, one would naturally 
be the upper and the other the lower group; but since we 


The Clash of the Classes 


19 


divide society into three groups or classes, then one is 
necessarily the uppermost or highest class, one the lowest 
class, and the other the middle class. Verbal accuracy, if 
nothing else, it seems to me, demands the abrogation of the 
commonly accepted upper, middle and lower class classi¬ 
fication of society, and dictates designating the three con¬ 
stituent groups, or classes, if you insist, as the highest 
class, the middle class, and the lowest class. According 
to Mr. Kahn and others, the wage earner is in the lowest 
class. 

What is it that puts a man or woman into the highest 
class? It isn’t intellect; it isn’t character; it isn’t culture; 
it isn’t moral perfection. It is chiefly wealth plus social 
position, and the purchasable concomitants, such as fash¬ 
ionable clothes, a magnificent residence, luxurious sur¬ 
roundings, a retinue of servants, leisure, etc. None will 
deny that one belonging to the highest class of society, 
may at heart be—and many of them are—reprobates. In¬ 
tellectually they may be nonentities, absolutely character¬ 
less, deficient in culture, lacking in refinement, devoid of 
the finer qualities, and morally below par. Yet none thus 
far has challenged their inclusion in the highest class. 

I, for one, cannot subscribe to a group arrangement that 
deliberately ignores the better qualities in individuals, or 
in groups. My intelligence refuses to accept as scientific 
a classification based wholly on the possession of wealth, 
and all that a plethora of riches implies. My sense of jus¬ 
tice, or shall I say, my common sense, rejects a stratifica¬ 
tion of society that takes no account of intellect, or of char¬ 
acter and the simple virtues which, none will deny, weigh 
heavy in the scale of human values. 

The Middle Group 

In plain English, I protest against the mass inclusion of 
all wage earners in the lowest class. Until those who can 
speak with authority—be they scientific sociologists, or 
just plain blunt men like Mr. Kahn—are willing to go on 
record as saying that probity and nobility of soul, goodness 


20 


The New Capitalism 


of heart, cleanness of mind, purity of conduct, innate 
honesty, a sense of justice, a decent regard for the rights 
of others—in brief, character and conscience—are of no 
social value, I shall insist on placing a considerable num¬ 
ber of the wage earners—most of them respectable and 
useful members of society, and who in the aggregate have 
contributed vastly more to the nation’s progress than the 
contingents socially higher,—into the middle class. It 
does not matter whether they work with their hands or 
their head; whether for a weekly wage or a fixed salary, 
or for an irregular honorarium. If the income of these 
workers with brain or brawn is not large, whose fault is 
it? If their “moderate income” does not permit them to 
cut much of a figure socially, who is to blame? If the 
meager wage or inadequate salary allowed by the Capital¬ 
istic System compels millions of men and women to live in 
humble homes and amid unpretentious and unaristocratic 
surroundings, not to say squalor, it is despicable of any 
constituent member of the Capitalistic group to turn up 
his nose at them. 

To Mr. Kahn, and whoever essays to write on this sub¬ 
ject, I say, with emphasis: “You shall not place the 
decent men and women of the United States into the lowest 
class simply because they work for a wage, or the equiva¬ 
lent of a wage. They are of the middle class! They are 
the middle class. Remove them and your so-called highest 
class will fall, socially and economically, into an abyss 
deeper than hell.” 

The Dead Past and Its Dead 

It is difficult for some people to understand that we are 
living neither in feudal times nor in the days of Louis 
XIV. They seem to forget that the American Revolution 
of 1776, once and for all, wiped out all invidious class dis¬ 
tinctions, at least in the United States, when politically it 
placed the nation on a common footing. What else does 
the term “democracy” signify? They seem to forget that 
the French Revolution of 1789, taking courage from our 


The Clash of the Classes 


21 


own example, in accents none too mild repudiated class 
distinctions with the words— liberte, equalite, f rat emit e. 
Indeed the French Revolution was an endeavor to equalize 
the classes by entirely eliminating the uppermost class— 
the nobility—the aristocracy, which, as we are reminded 
in Thiers’ “The French Revolution” had “built up a 
wall of demarcation between themselves and the rest of 
the Community, as if they were fashioned of more ‘ precious 
porcelain’.” And is there no lesson to be found in the 
more recent Revolution in Russia? 

The Dawn of a New Day 

It is difficult for some people to comprehend that within 
the last century vital and tremendous changes have taken 
place in the civilized world, and that the political upheavals 
observable everywhere today are but the pains of parturi¬ 
tion preceding the birth of a new social and economic 
order. 

At least in the United States let it be understood that in 
this year of our Lord 1922, we have neither feudal lords, 
nor barons, neither a nobility nor an aristocracy, and cer¬ 
tainly we who work for a wage or salary, or its equivalent, 
refuse to allow ourselves to be hurled back into what it 
would please some to designate economically, the peasant 
or serf class, socially the lowest group. 

Those who have a passion for making class distinctions, 
and particularly those who look upon the wage workers 
as our lowest class, socially and economically, might with 
profit ponder on these words spoken by President Harding 
in his Inaugural Address: ‘ ‘ Our fundamental law recog¬ 
nizes no class, no group, no section. There must be none 
in legislation or administration. The supreme inspiration 
is the common weal.” 


CHAPTER III 
The New Division 


B UT to sweep aside the old and generally accepted 
division of society into classes, places upon me the 
obligation to propose an entirely new classification, 
or rather group division, a division that has none of the 
objectionable features of the old classification—a division 
that is new and altogether more scientific. Above all it 
must be a division that concerns itself wholly with eco¬ 
nomic society—therefore an economic group arrangement 
that is reducable to approximate figures and easily divisible, 
something that is altogether impossible in what might be 
called a half social and half economic classification or 
grouping, under which the several members of the same 
family might belong to the three distinctive social classes. 
Thus, for example: the father may be a lawyer, wdiich will 
place him socially in the middle class; the son may be a 
wage earner, which fact would thrust him into the lowest 
social class; and the daughter may marry a multi-million¬ 
aire, which would automatically determine her social status 
in the uppermost class. But in a statistical division that is 
primarily economic no social violence is implied; the transi¬ 
tion from the one economic group to thef other group 
involves no medley of social contradictions. 

Producer and Consumer 

In past decades, loose economic writers, who preferred 
to deal with nicely sounding words and their opposites, 
rather than with fairly accurate terms, writers who troubled 
themselves not at all with definitions, have been wont to 
loosely divide economic society into two motley groups, 
namely, Producer and Consumer ; and even to this day we 


22 


The New Division 


23 


hear them used by writers and speakers as if there attached 
to them any scientific economic significance. A moment’s 
reflection would establish that the classification is altogether 
irrelevant. 

Who are the producers? How many among the forty 
million men, women and children listed as engaged in the 
“gainful occupations” can be called producers in the real 
sense of the word? After an analysis of the available sta¬ 
tistics I will say approximately one-third, certainly less 
than one-half, could be called producers. The producer 
group, as used in economic literature, therefore excludes 
a majority of those engaged in gainful occupations. Conse¬ 
quently, since no account is taken of the large number who 
cannot be classed as ‘ ‘ producers, ’ ’ the unscientific character 
of the producer and consumer division becomes at once 
apparent. If only those who actually produce something 
are called producers, some cognizance must be taken of 
those who, though working, are not engaged in production 
operations. A farmer, a miner, a steel worker, a baker, 
can be called a producer; but a boot-legger, a policeman, 
a railroad conductor, or a chauffeur, cannot be called a 
producer in the strict sense of the word. To call every 
worker, whether he produces or not, a producer, is highly 
inaccurate. 

The entanglement becomes even more obvious when we 
encounter the word consumer, sometimes, for the sake of 
emphasis perhaps, the ultimate consumer. The irrelevancy 
of the economic producer and consumer division is imme¬ 
diately apparent when we remember that the producer is 
at the same time a consumer—producing eight hours a day 
and consuming during sixteen hours of the day; in fact, he 
is a consumer even while he produces. But the production 
part of the formula is not predicable of all the consumers; 
whereas the consumption part is predicable of all, whether 
they be producers or non-producers, workers or idlers. 
Only a percentage of the working group are producers; 
but one hundred percent of the population are consumers. 

Clearly, then, the designations “producer” and “con- 


24 


The New Capitalism 


sumer” cannot be used appropriately, because millions of 
those engaged in work cannot be called producers in the 
literal sense of the word. All, however, are consumers. 
Even the retired millionaire is a consumer; he consumes as 
well as the wage earner. But the role of consumer makes 
no irksome demand on the millionaire. Consuming, to 
him, is no hardship, no trial, no tribulation. What he con¬ 
sumes does not exhaust his income; it makes no inroads on 
his wealth; it does not interfere with his further wealth 
accumulations; it does not disturb his capital funds. After 
a most liberal consumption most of his income remains to 
be invested by him in sundry profitable enterprises which 
will yield for him in the following year another uncon¬ 
sumable quantity of wealth, and increase of capital. 
Certainly, he does not deserve to be mentioned in the same 
class with the wage earner consumer, or the small salaried 
consumer, who in the course of the year consumes prac¬ 
tically all he earns; whose wages, or salary, is his only 
income; who has no investments, no income from any other 
source than the labor of his hands or his head. All he 
earns, generally a limited and stipulated amount, he is 
compelled to spend merely in order that he and his family, 
or those dependent upon him, may have a roof over their 
heads, clothes to wear and food to eat. He lives from hand 
to mouth. A month of idleness, or illness; a sick wife or 
child; or a death in the family, will cast him down and 
plunge him into debt. Once and for all I’ll dismiss the 
Producer-Consumer division as a sloppy, slippery economic 
makeshift, illuminating nothing, clarifying nothing, settling 
nothing, describing nothing. 

Bourgeoisie and Proletariat 

European economic literature abounds with the quasi- 
scientific terms Bourgeoisie and Proletariat. We have 
heard them frequently spoken of in connection with Social¬ 
ism in Germany, Syndicalism in France, Bolshevism in 
Russia, etc. I seriously question whether their use is scien¬ 
tifically justified; but since I do not mean to concern myself 


The New Division 


25 


with the economic problems of Europe, I will accept them, 
as, perhaps, applicable to economic conditions in Europe, 
but they certainly cannot be employed with any degree of 
appropriateness in the United States. In fact I reject the 
two terms peremptorily, basing my present rejection on the 
authority of the dictionary, which defines them as follows: 

Bourgeoisie —The middle class of Society; especially in 
France; used collectively. 

Proletariat —1. In earlier usage, the indigent classes, 
collectively of a community or a state, including day 
laborers and all other persons without capital or assured 
means of support: Regarded in ancient Rome as con¬ 
tributing to the state nothing but offspring; the lower 
classes; peasantry; rabble. 2. In modern socialistic use, 
the wage workers of a state or of the world, collectively, 
regarded as the producers of capital and creators of 
wealth; the laboring classes; working men. 

To still further emphasize the inapplicability of the 
terms to the economic conditions in the United States, one 
has but to glance at the definition of bourgeois and prole¬ 
tarian. The same dictionary defines them as follows: 

Bourgeois —Of or pertaining to the commercial or 
middle class as distinguished from gentle or noble; among 
modern Socialistic writers often used in opposition to 
working class or proletariat, or to characterize a system 
of commercialism. 

Proletarian —A person of the lowest or poorest class. 

I shall waste no further words on this strictly European 
division of economic society, beyond saying that it is inad¬ 
missible in the United States. 

Drawing the Line of Demarcation 

What, then, is a reasonably accurate and fairly scientific 
economic division—one that will stand the test of analysis 
and at the same time be computable in figures and per¬ 
centages? I may be in error when I say that the only 
economic division that will fit the case exactly is the one I 
am about to make; but I am not in error when I claim that 
my division is better and more nearly descriptive of actual 
conditions than any thus far made by any economic writer. 
On that contention I stand pat. My division may be sus- 


26 


The New Capitalism 


eeptible of improvement, but as it stands I claim for it that 
it is distinctively economic, and not an olla podrida classi¬ 
fication, part social, part economic, with a strongly political 
flavor spoiling the broth altogether. 

What it pleases some to call civilized society was orig¬ 
inally composed of only two classes—those who ruled and 
those who were ruled. The economic relationship between 
them was that of master and slave. But in due time grad¬ 
ual economic changes gave rise to another group, w T hich 
became known and is still spoken of by economic writers, 
as the middle class. The very word society is an aristo¬ 
cratic term, and I hesitate to use it when speaking of what 
the economists consider the lowest class of men and women, 
those who, we are told, constitute a group by themselves and 
who are in no sense any part of the social machine, except 
to serve those who are society. The difference is that in 
former centuries those who served had no claim whatever 
on those they served; whereas today the servants have at 
least a right to demand pay for their services. It is this 
very thing, namely, that pay must be accorded those who 
serve, that has given to society its economic, not to say 
mercenary, character. It is this very thing that has enabled 
a number of those who, economically, were of tl;e lowest 
class, to lift themselves into a somewhat more favorable 
position and thereby improve their social status. 

It is not my intention to trace the economic development, 
interwoven with that of society, either in Europe or in the 
United States. For the sake of brevity, therefore, I accept 
the middle class as a purely social group, while maintaining 
that many, if not all, of those who labor for a wage, have a 
right to claim membership therein. But since there is, and 
can be, no agreement as to who might be included and who 
denied admission; since there are differences of opinion as 
to where the dividing line is to be drawn; and since no one 
has ever ventured to compile a set of statistics from which 
one might fairly approximate who and how many belong 
to the highest class; and who and how many to the middle 
class; and who and how many to the lowest class, I am 


The New Division 


27 


persuaded to make an economic classification all my own, 
and one which, I think, fits in more accurately with the 
Capitalistic character that society has acquired in the 
United States within recent years. Instead of dividing the 
population into three social classes—upper (or highest), 
middle, and lower (or lowest)—I will divide it into two 
economic groups, which I shall call the INVESTOR 
GROUP, and the NON-INVESTOR GROUP. 

This purely economic group division seems to me alto¬ 
gether preferable in the discussion of a subject which is 
wholly economic, and concerns itself chiefly with the eco¬ 
nomic relationship existing between the several contingents 
that go to make up the social amalgam. 


CHAPTER IV 

The Investors and the Non-Investors 

F OR the purposes of this book, then, I shall divide 
the population of the United States into two distinct 
economic groups—the investor group and the non¬ 
investor group, and make an attempt at numerical classi¬ 
fication and apportionment. According to the latest United 
States Census Statistics, the population of the United 
States is 106,418,175. There are 24,351,676 families; an 
average family is composed of 4.3 persons. But in order to 
simplify my subject for the reader, and because practically 
all statisticians and economists have used five persons as 
constituting an average family, I am going to make my 
computations as if the population were one hundred mil¬ 
lion, and the size of the average family five persons—and 
therefore twenty million families. How many of this 
number are investors? 

Family Income Statistics 

The statistics show that in 1910 over ninety percent of 
the families in the United States had an income of less than 
$1500 a year. 1 It is a safe guess that there are not many 
investors to be found among them. It is likely that in 1917, 
1918 and 1919 the amount of income of these families was 
considerably greater, but the increase in income was 
absorbed by the increase in living costs, and therefore did 
not materially alter the situation as far as investments are 
concerned. We must, therefore, look for our investors 
among the remaining ten percent of the families. 

1 According to the income statistics for 1910, computed by Prof. 
Willford Isbell King, 51.54 percent of the families had an income of 
less than $500 a year, 30.15 percent between $800 and $1200, and 8.62 
percent between $1200 and $1500. (See table XL.IV. p. 228, "The 
Wealth and Income of the People of the United States.") 

28 



The Investors and the Non-Investors 29 


A Glance at Income Tax Statistics 

But he would be a reckless statistician who would con¬ 
clude that ten percent of the families are investor families! 
The “Statistics of Income” for 1918 2 show that only 
4,425,114 individuals filed an income tax report in that 
year. Of this number 1,516,938, or 34.28 percent, were in 
the class whose income was between $1000 and $2000; and 
1,496,878, or 33.83 percent in the class whose income was 
from $2000 to $3000. While beyond a doubt there are some 
investors among the three million in these two classes the 
statistics (Table 7) show that “dividends” and “interest 
and investment income” constituted a minimum of their 
income. The remaining 1,411,298 who reported incomes 
from $3000 to over a million, could more properly be said 
to constitute the investor group. 


Getting Down to Business 


But I am trying to put our best investor foot forward, 
and am desirous to make the group as large as possible. 
In the absence of definite statistics I will quote from the 
writings of a man who can be said to speak with authority. 
Charles M. Schwab, Chairman of the Bethlehem Steel Cor¬ 
poration, in an article in Collier’s Weekly (December 11, 


1920), said: 


“Three years ago a survey of 280 leading railway and 
industrial corporations disclosed that their securities were 


owmed by more than a million and a half of people. With 
the large purchasing of securities since the close of the war, 
a census taken today would, I believe, show that at least 
two and a half million people own, as investors, rights in 

- Number in 


3 Income Classes 


Each Class 


$1000 to $2000. 

$2000 to $3000. 

$3000 to $5000. 

$5000 to $10,000. 

$10,000 to $25,000. .. . 

$25,000 to $50,000_ 

$50,000 to $100,000. . . 
$100,000 to $150,000. . 
$150,000 to $300,000. . 
$300,000 to $500,000. . 
$500,000 to $1,000,000 
$1,000,000 and over. .. 


1,516,938 

1,496,878 

932,336 

319,356 

116,569 

28,542 

9,996 

2,358 

1,514 

382 

178 

67 















30 


The New Capitalism 


the profits of what is called ‘big business.’ If, therefore, 
big business is in a conspiracy against the people, quite a 
number of the people seem involved in it.” 

When Mr. Schwab speaks of two and a half million in¬ 
vestors he does not take into consideration that many of 
the security holders he speaks of are security holders in 
a number of corporations; that is to say, the same names 
appear repeatedly in different investor lists. Which being 
the case I would be justified in making a considerable 
reduction on account of duplications. But instead of reduc¬ 
ing the number of investors—individuals and families—by 
a half million or more, as I believe could be done in all 
fairness, I prefer to deliberately enlarge upon Mr. Schwab’s 
estimate, and to settle upon a figure that will include all 
investors, of whatever kind. 

For the purposes of this book I am going to say that 
there are four million investors—or rather four million 
families, comprising twenty million of the population. 
Many investors are probably investors in businesses of their 
owm. On the other hand some of the security holders may 
be lawyers, physicians, dentists, editors, etc.; many of them 
are manufacturers, merchants, tradespeople, farmers, etc. 
In other words, whatever dividends or interest they may 
derive from security holdings is additional to an income 
derived from other pursuits or sources. Then, too, there 
are men, and women, who are not actively engaged in busi¬ 
ness ; who have sold out their business interests for cash, or 
are retired, or who, through inheritance, have been enabled 
to invest in real-estate or securities of various kinds, and 
who are conspicuous in the investor group. 

To say that there are four million investors of all kinds 
in the United States, is, to my w T ay of thinking, a very 
liberal estimate, particularly when we remember that from 
eighty to ninety percent of the families have an income just 
about sufficient to enable them to live; and who do not share 
appreciably in the national wealth. This, at least, is the 
conclusion one would arrive at from a correlation of the 
statistics pertaining to Income, Wealth, Occupations, and 



The Investors and the Non-Investors 31 


Income Tax. Moreover, as we have seen, only four and a 
half million individuals filed income tax reports in 1918, 
three million of whom reported that a very small part of 
their income was derived from investment. 

But when we speak of four million investors in the United 
States we must keep in mind several things which tend to 
modify the claim: First, that while there may be four mil¬ 
lion investors on all the lists, beyond a doubt many names 
are duplicated, that is to say, the same names are repeated 
over and over. Second, that many of the “investors” in 
American securities are foreigners. It has been said that 
European investors have from eight to twelve billions 
invested in the United States. Third, that many citizens 
of the United States, whose names appear in investors’ 
lists, have invested in foreign securities and enterprises. 
A financial writer recently stated that “American invest¬ 
ments in Canada total two billion dollars.” It would be 
interesting to know exactly how much capital citizens of 
the United States have invested in foreign enterprises or 
securities. 

But in spite of all these things I will continue to consider 
the investor group as composed of four million individuals , 
families or estates, comprising twenty million persons. Nor 
will I particularly stress that of a considerable number of 
families it can be said that every member is an investor. 
I ’ll go a step further and say that these four million invest¬ 
ors, to all intents and purposes, own and control practically 
all of the valuable productive and profit-yielding prop¬ 
erties in the United States; all the businesses; banks, trans¬ 
portation systems, insurance companies, public utilities, 
mines, factories, stores, real estate, etc. 3 

We may now state the case as follows: 

THE INVESTOR GROUP is composed of four million 
investors—let us say—four million families of five members 
each; therefore twenty million men, women and children 


8 For reasons that I explain later in this chapter, I am excluding 
the farmer from the Investor Group. 



32 


The New Capitalism 


are included in the investor group. Twenty percent of the 
population constitute the investor group. 

THE NON-INVESTOR GROUP is composed of sixteen 
million families—a total of eighty million men, women and 
children; or eighty percent of the population. 

Liberty Bond Investors 

Let not some smart aleck triumphantly shout that he has 
me on the hip—that I have misstated facts—that there are 
not only four million but nearer twenty million investors, 
in the United States, for did not millions of men and women 
in the United States purchase Government bonds—Liberty 
or Victory bonds? Roger Babson, who is looked upon as 
an authority on economic matters, and as a statistical 
expert, said in January, 1921, that eighty percent of the 
original purchasers are still holding their bonds. A few 
weeks later George M. Reynolds, former President of the 
Continental and Commercial Bank, said that about fifty 
percent of the original bond purchasers still hold their 
bonds. I do not know upon what data Messrs. Babson and 
Reynolds base their conflicting statements; but let us not 
cavil—let us compromise by saying that more than half of 
those who bought Liberty and Victory bonds are still 
holding them. 

But why are they holding them ? It would be fine if we 
could say in stentorian tones that they are holding them for 
patriotic reasons. But throwing dust into my own eyes is 
not one of my accomplishments—and I am incapable of 
lying to myself. If approximately one-half of the original 
bond purchasers are still holding the bonds they purchased 
—they are holding them primarily because they cannot 
dispose of them except at a loss. If you insist on speak¬ 
ing of those who bought Liberty and Victory bonds as 
‘ ‘ investors, ’ ’ I am going to insist that you consider the 
bonds they hold as nothing more than an investment; in 
which case I shall tell you that from an investing stand¬ 
point Liberty and Victory bonds were a poor investment. 

Until the latter part of 1921 the bonds they purchased at 



The Investors and the Non-Investors 33 


$100 (many buying them on the instalment plan and paying 
interest thereon from date of purchase) were quoted in the 
market as low as $88.00. 4 Let us have done with hypocrisy 
and camouflage. Hard though it may be, let us at least be 
honest with ourselves. If the truth must be told many of 
those who bought either Liberty or Victory bonds were 
forced to buy them—they had no alternative. Charles G. 
Dawes, in charge of the Liberty bond sales in Chicago, said 
to his salesmen: “If any man refuses to buy a bond, knock 
him down.” The Congressional Record is full of stories of 
citizens who were forced to buy the quantity allotted to 
them by the salesmen. A queer kind of investor, who is 
compelled to buy, nolens volens. A queer kind of invest¬ 
ment that is compulsory upon many who could not afford 
to buy, but who would have been punished by loss of their 
job—or who would have been insulted and reprobated, or 
jailed or killed, had they refused. The less we say of the 
manner in which thousands of citizens were coerced into 
becoming ‘ 1 investors’ ’ the better. I mention all these things 
for the benefit of those economic writers and analysts who 
might be tempted into an endeavor to show that the investor 
group is larger than I have declared. 

Professor David Friday, in his “Profits, Wages and 
Prices” says: “Early in 1919 the sales of liberty bonds 
through private channels and upon the New York Stock 
Exchange reached tremendous proportions. For the full 
year these sales on the Exchange totaled three billion dol¬ 
lars, and for the first four months of 1920 another billion 
was sold. A large part of the funds derived from this 
source were devoted to the purposes of ordinary consump¬ 
tion, rather than to capital expansion.” 

In June, 1922 it was reported that over three-fourths of 
the Liberty and Victory bonds were now in the hands of 


4 Liberty Bond Prices 

in New 

York, April 8, 1921: 

87.86 

Liberty . 

90.26 

Liberty 4th 4%s.... 

Liberty 2d 4s. 

87.52 

Liberty reg. 

87.70 

Liberty 1st 4 s. 

87.90 

Victory 4%s. 

97.58 

Liberty 2d 4 1 / 4s. 

87.86 

Victory reg. 

97.44 

Liberty reg. 

Liberty 3d 4*4s. 

87.60 

91.00 

Victory 3%s. 

97.58 













34 


The New Capitalism 


the big banks and investors, who had bought them in at low 
figures. About the same time Liberty and Victory bond 
prices went up, and are now quoted at around par. 

Tax Evading Investors 

Those boastful speakers and optimistic writers who 
delight to swell the number of investors, might, with better 
grace, speak of the millions of “patriots” who since the 
passing of the Income Tax law have invested heavily in tax 
exempt securities, state, county, municipal and even foreign 
bonds. Secretary of the Treasury Mellon, in his annual 
report, recently stated that more than ten billion dollars 
are invested in tax exempt securities. Other estimates I 
have seen place the amount thus invested between twenty 
and thirty billions. Professor E. R. A. Seligman, before 
the House Ways and Means Committee on the resolution 
to amend the Constitution to permit the Government to tax 
securities which are now exempt, declared that unless the 
Government intervenes within a few years, from two to 
three billion dollars a year of state and local tax exempt 
securities will be issued. 

Investors in Homes 

But there are those who will insist that the man who 
owns his home is an investor. I do not feel disposed to 
quarrel with those who put forth this contention. However, 
let us take a glance at the statistics. According to the 
Census Bureau Statistics (published October, 1921) the 
total number of homes enumerated in 1920 was 24,351,6.76. 
Of this number 13,247,313 families were renters, 6,667,113 
families owned their homes, while 4,271,544 families had 
mortgages on their homes. Reduced to simpler terms 54.4 
percent of the families live in rented homes; 28.2 owned 
the homes they occupy free of incumbrance, and 17.5 are 
occupants of homes that are mortgaged. (The status of 
285,243 homes was not reported.) 

That it is difficult to even approximate actual conditions 
with regard to the ownership and tenancy of houses and 


The Investors and the Non-Investors 35 


homes may be judged from Chicago’s housing survey, 
according to which out of the nearly three million persons 
living in Chicago 125,000 own their homes, while 60,000 
persons owned 145,914 apartment buildings occupied by 
nearly two million people. 

Beyond a doubt, many, if not all, of the four million 
investors, own their homes; many of them, besides, own 
buildings occupied by tenants. If a house owner occupies 
the building he owns himself his property represents an 
investment indeed, but it yields him no revenue. But if he 
owns houses in addition to the one he occupies, he takes his 
place among the landlords, and as such derives an income 
from his investment. In all probability many of the four 
million constituting the investor group are landlords. 

Beyond a doubt, also, a fair percentage of those I have 
classed as non-investors own their homes outright. In that 
case the owner simply plays the double role of landlord and 
tenant. Instead of paying rent to a landlord he pays it to 
himself. The amount he pays out for taxes, insurance, 
upkeep, alterations and, computing interest on the amount 
tied up in the property he occupies, is, in every case, the 
equivalent of rent. 

On the other hand, if he has only an equity in the prop¬ 
erty, if the home in which he lives is mortgaged, then far 
from being an investor he is just the reverse—he is a 
debtor. The real investors are those who hold the mortgage. 
It is the mortgage holder who derives a revenue from the 
non-investor’s partial ownership. It is the equity holder 
who pays interest on the unpaid portion of the property 
of which he is the nominal, but not the actual, owner. The 
mortgage holders are the real investors; not the mortgagor. 
Probably if all data could be obtained it would be revealed 
that a considerable number of the four million investors 
hold mortgages against the properties in which many non¬ 
investors have only an equity. 



36 


The New Capitalism 

Is the Farmer an Investor f 

Farm owners are, of course, investors, but let us remem¬ 
ber that the farmer derives his income from his joint invest¬ 
ment and labor, and that it does not much exceed, and in 
some years even falls below, what the Government calls a 
subsistence level of income. 

The farming industry is valued at eighty billion dollars, 
an amount greater than is invested in all the railroads, 
manufactures and mines. Yet on this investment, plus 
their labor, the farmers in 1912 realized only six billion 
dollars, or (considering that there are more than six mil¬ 
lion farm owners) an average of less than $1,000 per farm 
owner. This amount, mind you, represents interest on 
investment, and wages for labor performed. It is quite 
true that there can be added to this income a certain 
amount for the item of rent; and likewise an amount cov¬ 
ering food products consumed by the farmer and his family. 
But even so, surely it must be clear that the farmers ’ in¬ 
come must cover interest on investment, wages for labor 
performed, and whatever allowance may be made for the 
items of rent, and food products consumed, so that the 
total amount of average income per farmer is hardly more 
than the equivalent of an industrial worker’s family income. 

The U. S. Department of Agriculture recently studied 
farm incomes from three groups of farms in the middle 
west; Dane County, Wisconsin; Washington County, Ohio; 
and Clinton County, Indiana. According to the Farmers’ 
and Drovers’ Journal, the Department of Agriculture ob¬ 
tained the following results: 

“The average annual income from Dane County farms 
over five years, was $1,293. Of the 185 farmers in the three 
areas, none made a labor income of $1000 for every year 
in the study, but 18 in the Indiana area and 7 in the Wis¬ 
consin area made labor incomes averaging over $1000 per 
year for the period. Four farmers (two percent of the 
entire number) made over $500 labor income every year. 
Averaging labor income and loss over the whole time, 15 


The Investors and the Non-Investors 37 


percent of the farmers failed to make any labor income at 
all. Ten percent failed even to make five percent interest 
on investment in any year of the study. 

The average return on investment increased from about 
four percent in 1913 to seven percent in 1918. But most 
of the farmers made less than $500 a year over the things 
the farm furnished toward the family living. It was ap¬ 
parent to department officials, therefore, that few farmers 
are making large profits.” 

At the hearings 5 before a subcommittee of the Com¬ 
mittee on Interstate Commerce, Mr. E. A. Calvin, of Hous¬ 
ton, Texas, Washington Representative of the Cotton State 
Board, stated that “the average earnings of a farmer and 
his family, in the Southern States, where cotton is grown, 
is less than $750 per annum—that is gross; not net.” 

Even remembering that for the period of the war, when 
prices of farm products were considerably higher than 
before the war, the aggregate income of the farmers was 
18 billion dollars a year—and the average Income per 
farmer can be said to have been $3000, plus his rent and a 
certain amount of living commodities—it must also be re¬ 
membered that the prices of all commodities which the 
farmer had to purchase from others had increased in the 
same proportion, thus practically leaving him no better off 
than before the war. At any rate the war period is over; 
and the war prosperity of the farmer has come to an abrupt 
end. Taking it all in all, at least for the purpose of this 
book, I consider it perfectly legitimate to include the far¬ 
mers in my non-investor group, since from all appearances 
they are deriving only the equivalent of wages from their 
joint investment and labor. 

The Investor Group and Non-Investor 

Group Divided 

The investor group and the non-investor group are sepa¬ 
rate and distinct, and hopelessly divided. There are hun¬ 
dreds of laws specifically protecting the rights of the inves- 


6 May 20. 1920. 



38 


The New Capitalism 


tors, but no specific law protecting the rights of the non¬ 
investors. The courts, under the aegis of those laws, are 
compelled to side with the investor as against the non¬ 
investor. I think I am safe in saying that there are no 
court decisions that have been favorable to the non-inves¬ 
tors. 

Not only are there no laws on our statute books that 
protect the non-investor as against the investor—there are, 
on the contrary, a formidable number of legal enactments, 
state and federal, that are distinctly contrary to the inter¬ 
ests of certain contingents within the non-investor group 
—laws destructive of natural rights or depriving non¬ 
investors of the free exercise thereof; curtailing them, en¬ 
joining them, circumscribing them, compelling them. This 
is clearly true with regard to the laboring group. During 
the past few years, a number of state and federal laws have 
been passed, or proposed, that are restrictive, prohibitive 
or coercive measures, directly aimed against the Labor 
group. Among these may be mentioned the Lever law; 
the Esch-Cummins Bill; the Poindexter Anti-Strike Bill; 
the Calder Bill; and such by law established institutions 
as the Kansas Industrial Court. Then there are adverse 
court decisions, for example the recent decision of the 
Supreme Court of the United States in the Duplex Printing 
Press Company case, and which decision practically de¬ 
stroys the Clayton Act, and other decisions all taking away 
from those who labor the exercise of their natural rights, 
or depriving them of legal protection. 

A Postscript 

You may find fault with many things in this chapter; 
you may object that there are more investors than I claim. 
Very well, change the proportion as you please. But you 
cannot deny that dividing the population, or families, of 
the United States into two separate economic groups— 
investors and non-investors—is a step forward, and in the 
right direction—a better group arrangement than we have 
at present. 


CHAPTER Y 


The Different Kinds of Investors 

NTIL someone having access to statistics or data not 



available to me, will tell ns exactly how many indi- 


vidual investors there are in the United States, I 
shall adhere to my estimate of four million investors in all 
forms of property, except farms. From this number I will 
set aside one million whose investments are probably in 
things other than corporate securities. This leaves three 
million investors in the securities of corporations. You will 
probably recall that Charles M. Schwab said that two and 
a half million persons own, as investors, rights in the profits 
of the big corporations. My estimate of three million is 
intended to cover all security holders in all corporations. 

Separating the Wheat from the Chaff 

The term investor is used in a rather loose sense in these 
Capitalistic times. It is applied to hundreds of thousands 
who are not investors in any sense of the word. Let us 
make an attempt at clarifying our views on this important 
point. 

There is a considerable number of persons who are pro¬ 
fessional speculators, not investors. They speculate in 
stocks; they buy on margin. Their profits are derived, not 
from the industry itself, not from holding the securities of 
corporations in order to annually derive a dividend, or 
interest, but from the repeated buying and selling of securi¬ 
ties. It is a well known fact, and my statement will hardly 
be disputed, that nine-tenths of all stock transactions are 
of a speculative character, the speculator buying one day 
and selling the next. Senator Cummins, speaking on the 
floor of the Senate, September 1, 1913, declared that 90 


39 


40 


The New Capitalism 


percent of the sales (on the New York Stock Exchange) 
were purely speculative. 

Moreover, a large percentage of the loans made by the 
great eastern banks is for the purpose of speculation. The 
following, from the Chicago Daily News (July 11, 1921) 
sheds an interesting light on this phase of our subject: 

“It is estimated that the daily call money turnover in 
the New York market is now only $10,000,000 to $15,000,- 
000, against a normal of $40,000,000 to $50,000,000. The 
high level of Wall Street borrowings ran to $1,750,000,000 
in July, 1919, but the belief is that it runs little beyond 
$600,000,000 now. Improvement in the stock exchange 
clearing machinery has tended to reduce the amount of 
money necessary to transact a day’s business.” 

The annual volume of purely speculative stock transac¬ 
tions can be gauged by this rather frank admission. Call 
loans are loans made for a short time to the professional 
speculators in stocks, not to bona fide investors. They 
borrow the money to speculate with, buying on margin, 
never, or at least rarely, paying the full market price for 
the number of shares involved. By no stretch of the im¬ 
agination can one who borrows money for the purpose of 
marginal speculation be called an investor. Half of our 
difficulties and misunderstandings would disappear if we 
would only call things by their right names. The difference 
between a speculator and an investor is the difference 
between night and day; as marked as the difference between 
a skunk and a robin. 

An Estimate of the Number of Speculative 

Investors 

It would be interesting and illuminating to know exactly 
how many speculative “investors”—save the mark! there 
are in the United States. But there are no statistics. 
Neither are the professional speculators listed in the sta¬ 
tistics pertaining to “Occupations” compiled by the De¬ 
partment of Commerce, and which purport to give a com¬ 
plete record of everybody “ten years of age and upward 


The Different Kinds of Investors 41 


engaged in gainful occupations,” although the Census 
Statistics for 1910 gives 23,600 commercial brokers and 
commission men; 13,522 stockbrokers; and 8,391 brokers 
not specified, and promoters. Beyond a doubt the specula¬ 
tors in securities—whether you call them speculative in¬ 
vestors, or professional speculators, or gamblers in securi¬ 
ties is to me immaterial—constitute a considerable contin¬ 
gent of the group it pleases financial writers to call 
investors. 

Let us, for the present, say that one-half of the three 
million investors are of the speculative kind—that is to say, 
one and a half million investors are, in reality, speculators, 
not investors. If you think this estimate too high, or too 
low, change it to suit yourself. I shall not mind it. I will 
even allow you to call them investors, on condition, how¬ 
ever, that you designate them as mala fide investors to 
distinguish them from the bona fide investors. 

The Bona Fide Investors 

There are left, then, a million and a half of investors 
in the securities of the various corporations—men and 
women who paid cash for their securities, and who are 
content with a reasonable return on their holdings. These 
I will call bona fide investors. Most of them are small 
investors; their individual holdings are not large; their 
collective profits, by comparison with the profits made by 
the speculative—or mala fide investors, are negligible. As 
far as the industries in which they happen to have invested 
are concerned, they are nonentities. They take no active 
part in any of the industries. They know nothing about 
the business of which they are a part by virtue of their 
holdings; they have no voice in its management; and 
nothing at all to say about the companies’ policies. They 
are not consulted; an expression of their opinion isn’t 
solicited; their advice isn’t sought; and if it were volun¬ 
tarily given would be considered as an impertinence. They 
attend no conferences, or committee or directors ’ meetings; 
not even the stockholders’ meetings. They do not elect 



42 


The New Capitalism 


the officers or directors. Their vote is never cast in person; 
always by proxy, the proxy holders being invariably an 
integral part of the corporation’s personnel. 

The Usefulness of the Small Investor 

There is apparent at the present time a concerted en¬ 
deavor on the part of ‘ ‘ Big Business ’ ’ to increase the tribe 
of small stockholders. Thus, for example, we read edi¬ 
torially in the Chicago Journal of Commerce (November 
9, 1920) : 

“A wider distribution of the stocks among small inves¬ 
tors is the campaign of corporations. As one financial 
writer put it, speaking of the railroads, ‘They will never 
get public opinion behind them and supporting them until 
they have a great body of small stockholders among those 
who use their service—the farmer, the shopkeeper, the 
commercial traveler, the manufacturer. They have got to 
do what the public utilities did so successfully, entrench 
themselves in the good will of the people by making the 
public financially interested in their successful opera¬ 
tions.’ ” 

Those who constitute ‘ ‘ Big Business ’’ long ago discovered 
that the best way to control public opinion and curb ad¬ 
verse criticism, is to make a considerable portion of the 
public, at least nominally, co-partners in their sundrv 
Capitalistic exploitation schemes. 

The truth of the matter is the small investor is a conve¬ 
nience to the big corporations rather than a necessity. 
That he is frequently considered as a necessary evil may 
be concluded from the ruthlessness with which he is elimi¬ 
nated whenever his continued presence is construed as 
obnoxious or superfluous. One has but to examine the 
records pertaining to some of the wrecked railroad proper¬ 
ties of the United States to discover in what esteem the 
small investor is held. For all practical Capitalistic pur¬ 
poses the small investor is a supernumerary—a spear- 
bearer ; he adds impressiveness to the play, picturesqueness 
to the scene. 


The Different Kinds of Investors 43 


Women Investors—Widows and Orphans 

Women are especially desirable among the small inves¬ 
tors, for with them in the crowd, particularly when they 
can be spoken of as “widows and orphans,” who is so 
ungallant, so unchivalrous, so bold as to throw stones at 
them? W. W. Atterbury, Vice President of the Pennsyl¬ 
vania Railroad Company, recently declared that the Penn¬ 
sylvania Railroad had 140,000 stockholders, over half of 
whom are women. 

I hardly know why Mr. Atterbury so insistently stressed 
the sex of a majority of his investors—for investor is a 
noun—common gender. When the Pennsylvania Railroad 
recently reduced its dividend rate from six to four percent, 
did the women stockholders, “widows and orphans,” fare 
better than the men stockholders ? Why this sex emphasis ? 
What difference does it make whether an investor is male 
or female, Jew or Gentile; his or her color black, white, red, 
or yellow? Yes! What difference does it make? Because 
an investor is a woman does that make the investment more 
sacred, or the property rights more inviolable? The laws 
of economics do not differentiate. In actual business prac¬ 
tice a female is grist for the economic mill as well as a 
male; as great a profit can be, and is, made out of a female 
as out of a male—out of a child as out of an adult, out of 
a widow as out of an orphan. Much of the profit of corpo¬ 
rations is derived from the labor of underpaid women and 
children. 

Sex does not protect women stockholders when a cor¬ 
poration decides to pay no dividends to its stockholders, 
sometimes for years on a stretch, as in the case of many 
railroads and public utilities; or when dividends are re¬ 
duced, as in the case of the Pennsylvania Railroad, from 
six to four percent. And in those cases where it can be 
shown that the insiders defrauded the stockholders, froze 
them out, robbed them of their just due by looting treas¬ 
uries, grafting and mismanagement and wrecking of prop¬ 
erties into which women had been persuaded to invest, 


44 


The New Capitalism 


one looks in vain for any special consideration extended to 
“widows and orphans.’’ 

The Smoke Screen Purpose 

The principal value of the small investor is that he or 
she can be used as a smoke screen, under cover of which 
it is possible to do many things which otherwise could not 
be done. “If Big Business is in a conspiracy,” said Mr. 
Schwab, “quite a number of people seem involved in it.” 
It is this smoke screen purpose that explains the small 
investor’s popularity. 

Employees as Stockholders 

Running parallel with the Capitalistic plan to increase 
the number of smoke screen investors is the Capitalistic 
campaign (begun ten or twelve years ago) to inveigle the 
employees of corporations—wage earners and salaried men 
and women—into becoming stockholders. During the past 
few years a considerable number of the leading corporations 
have ingeniously put forth Employees’ Stock Subscription 
plans. For example: On Thanksgiving Day, 1920, the 
daily papers announced that the directors of the Standard 
Oil Company of New Jersey had voted to submit to its 
stockholders “a plan by which about 37,000 employees in 
America would be assisted in acquiring stock. Increase in 
the common stocks by $10,000,000, accompanied by the 
reductions of the present $100 par value to $25, is included 
in the proposition. Employees who have been active in the 
Company’s service for a year or more will be eligible to 
acquire stock.” 

According to Mr. Gary 1 on April 30, 1919, more than 
40,000 employees were stockholders in the United States 
Steel Corporation. “Their aggregate holdings amounted 
to more than 186,000 shares of stock at a par value of 
$18,600,000. 

“In January, 1920, employees of the United States Steel 
Corporation and the subsidiary companies, were again 


i The Magazine of Wall Street (November 13, 1920). 



The Different Kinds of Investors 45 


offered the privilege of subscribing for shares of the com¬ 
mon stock of the corporation. . . . Subscriptions have 

been received from a total of 66,311 employees, for an 
aggregate number of 167,263 shares. This is the largest 
subscription received under any offer. ’ ’ 2 3 

This endeavor on the part of ‘ ‘ Big Business 7 7 to grapple 
to itself its employees “with hoops of steel, 77 has several 
notions behind it. Sir Charles Wright Macara, reputed to 
be “one of the foremost business men in England, 77 re¬ 
cently said: 

“If the workmen feel that they must earn more to face 
the cost of living, they should accept a monetary interest 
in the industries which give them employment. . . . 

This principle of individual co-partnership would help to 
solve many of the problems pending between Capital and 
Labor. 7 7 3 

But we need not go to England for proof that there is 
method in the madness that is trying to make labor parti- 
ceps criminis in the sundry Capitalistic schemes. Here, for 
example, are a few excerpts from a speech made by Dr. 
Charles A. Eaton, before the Chicago Association of Com¬ 
merce : 

“Where are we going to find new resources and capital 
for working the industries of this country? We have got 
to find it. I tell you, gentlemen, that it is right here in 
the surplus, the savings of the working people of this 
nation. . . . 

“I believe that we could turn into the industries of this 
country about two billion dollars a year from that one 
source alone, and every investor so guaranteed and so 
looked after and cared for and educated, would become a 
tower of strength against all the revolutionary doctrines 


2 At the end of 1921 the United States Steel Corporation reported 
107,439 stockholders, over one-half of whom it would seem, are em¬ 
ployees. But their aggregate holdings 353,263 shares, computed at par, 
represent a value of $35,326,300, which is less than three percent of the 
authorized capital stock of the United States Steel Corporation. 

3 "In Search of a Peaceful World," by Sir. Charles Wright Macara 
quoted in the Chicago Daily News, December 31, 1920. 



46 


The New Capitalism 


of radicalism and stupidities that are sweeping over the 
world today. There is a great field there. ’ ’ 4 

This is what I call killing a whole flock of birds with 
a stick of dynamite. Dr. Eaton is right—“There is a great 
field there. ” If “ Big Business ’ ’ can succeed in tying, and 
keeping tied to its chariot, a considerable number of wage 
earners, its forward course henceforth will be a;veritable 
triumphal procession. 

The Nexus of the Matter 

But I will not allow myself in this chapter to be carried 
away by the temptation to inquire into the concealed mo¬ 
tives inspiring and actuating “Big Business” in any of its 
designs. I set out to approximate the constituency and 
complexion of the investor group, and shall therefore re¬ 
sume the pursuit of my immediate purpose. 

I have estimated 5 the total number of investors as four 
million persons, one million of whom I have set aside as 
constituting a group whose investments are in things other 
than the securities of corporations. This leaves three mil¬ 
lion in the securities investor group, wdiich I have divided 
as follows: 

Non-speculative, or bona fide investors, 1,500,000. 

Speculative, or mala fide investors, 1,500,000. 

But even though we were to say that four million inves¬ 
tors collectively held all the securities issued by all the 
corporations in the United States, the one thing I desire 
above all others to emphasize, is that the virtual ownership 
and control of the important corporate properties is vested 
in the hands of about one percent of the investors, or about 
40,000 persons. Nay! I’ll go a step farther and say that 
actual ownership and control is concentrated in the hands 
of one-tenth of one percent—or approximately 4000 indi¬ 
viduals or families of the so-called investors. Indeed it 
would not be difficult to show that dominant ownership and 

4 Quoted from Chicago Commerce, March 12, 1921. 

B I shall be glad to correct my tentative estimates the moment 
authentic or official statistics, fully covering the points involved, are 
forthcoming. 



The Different Kinds of Investors 47 


control resides in less than one-hundredth of one percent 
of the total number of investors—in 400 families or estates, 
rather than in 4000 individuals. I could easily fill a dozen 
pages with relevant statistics, all tending to support me 
in my contention; but I do not consider this necessary at 
the present moment, particularly since succeeding chapters 
will go far toward establishing the fact. 

These four hundred, or four thousand, or forty thousand 
(more or less, as you choose) circle within circle, constitute 
the inner Capitalistic cabal—are the center of the Capi¬ 
talistic System as we know it today; the chief actors in, and 
beneficiaries of, what it pleases some to call “the established 
order”—which is nothing else than Capitalistic Mam- 
monism. 


CHAPTER VI 


The Capitalistic Entrepreneurs 

IME was in the history of our industrial develop¬ 



ment, when we had a race of men who were pioneers 


Js- in business enterprises; men who, with small capital 
at their command, built up the leading industries of the 
nation successfully and to surprising proportions. Consid¬ 
ering them as a group, we can say that they were men of 
native ability, of shrewd intelligence, of sturdy character, 
of robust integrity. Many of them, by hard work, laid the 
foundation of modest fortunes upon which they built slowly 
and conservatively. True, there were few millionaires 
among them; most of them hardly dared to dream of ever 
becoming more than moderately rich. 


Captains of Industry 


These men who founded, or were at the head of, the lead¬ 
ing industries and enterprises were called Captains of 
Industry, as indeed they were. The railroad president was 
actually a railroad man—builder or principal owner—tak¬ 
ing a personal interest, and feeling the pride of manage¬ 
ment or ownership, and the glory of achievement, in the 
properties over whose destinies he presided. The president 
of a steel mill was an iron-master; and so on, covering the 
entire list of industries. 


Captains of Finance 


In those times banking was a distinct business; and the 
banker a business man whose business it was to mass to¬ 
gether small amounts of idle money and wealth and bring 
them into use. Through his agency wealth, which would 


48 


49 


The Capitalistic Entrepreneurs 

otherwise be unproductive, became productive. The banker 
was, therefore, a Captain of Finance, the intermediary 
between those who possessed capital and those who em¬ 
ployed it. As such he was a part of the business machine 
—the main spring of the Clock of Commerce—the pen¬ 
dulum, if you will. 

“The Old Order Changeth” 

But towards the end of the nineteenth century a tremen¬ 
dous change took place in the business of banking. The 
banker, whose profits and success as a business man de¬ 
pended as much upon the continued good will and patron¬ 
age of men in other businesses as upon his reputation for 
honesty and square dealing; the banker whose sterling 
character, unquestioned integrity and sound business judg¬ 
ment were his chief assets, ceased to exist, and in his place 
appeared the Investment banker, as different from the old 
style banker as night from day. With his coming the old 
business and banking methods were contemptuously kicked 
aside. New business and banking principles were substi¬ 
tuted for the old; new policies were adopted; new methods 
introduced, new practices instituted. Thus the “established 
order” came to an abrupt end, and a new order was estab¬ 
lished almost overnight, we might say, and by a few men. 

The Advent of the “Investment Banker” 

The old style banker dealt in actual capital, actual 
wealth, actual securities, and loaned the capital submitted 
to his care against actual values and actual assets. The new 
Investment banker took all these as a basis, and added 
thereto vast amounts of fictitious capital and fictitious 
wealth, which he himself created by a stroke of the pen; 
arbitrarily inflated values, vastly in. excess of existing 
assets; against which fictitious valuation he issued ‘ ‘ securi¬ 
ties ’ ’—stocks and bonds which at their inflated value could 
be used as credit instruments, and upon which he borrowed 
or loaned, or, more properly speaking, took or extended 


50 


The New Capitalism 


credit many times greater than was justified by the actual 
value of the physical assets. 1 

Conscious of the tremendous power vested in their abso¬ 
lute monopoly of the nation’s finances—their unchallenged 
control of the nation’s money and credit; quick to see the 
possibilities of a still greater expansion of that power 
through the medium of inflated securities flotations—and 
by no means blind to the immense profits that could be 
made to accrue to them—a small group of Investment 
bankers, under the leadership of J. Pierpont Morgan, con¬ 
stituted themselves into syndicates for the clear cut pur¬ 
pose of taking over the principal industries, national re¬ 
sources, raw materials—everjdhing, in fact, out of which a 
profit could be made—with what success is now generally 
known. 

The Ascendancy of the “Captains of Finance” 

Thus it came to pass that Capitalists, or bankers—more 
accurately speaking, Investment bankers—became Entre¬ 
preneurs; the new Captains of Finance arrogated to them¬ 
selves also the role of Captains of Industry. Capital be¬ 
came the employer. And yet, only a few years before, the 
possibility of such a thing was scouted by eminent econom¬ 
ists. For example, Francis A. Walker, “a distinguished 
American economist” writing in 1875, vehemently main¬ 
tained that the capitalist and the employer were entirely 
distinct; indeed he insisted on calling the employer a 
middle man, placing him between the capitalist and the 
laborer. 

“It is no longer true,’’ said he, ‘‘ that a man becomes an 
employer because he is a capitalist. Men command capital 
because they have the qualifications to profitably employ 
labor. To these, Captains of Industry, despots of industry, 
if one pleases to call them so, capital and labor alike resort 

1 1 need hardly put stress on what is universally known, that the 
flotation, the underwriting 1 and the marketing of stock and bond issues 
based on inflated valuations, is now a highly remunerative branch of 
the Investment banker’s business, and a constant source of considerable 
revenue and profit to those engaged therein. 



The Capitalistic Entrepreneurs 51 

for the opportunity to perform their several functions. I 
do not mean that the employer is not in any case, or to 
some extent, a capitalist; but that he is not an employer 
simply because he is a capitalist, or to the extent only to 
which he is a capitalist. . . . 

‘‘I hold that no theory of the distribution of wealth, in 
modern industry, can be complete which fails to make 
account of the employing class, as distinguished in idea, 
and largely also in its personnel, from the Capitalistic 
class.’’ 2 


A New Economic Term 

The word Entrepreneur is a comparatively new word in 
our economic literature, and economic writers do not seem 
agreed as to its precise meaning and application. Accord¬ 
ing to the dictionary an Entrepreneur is “one who starts 
and conducts extensive industrial enterprises. ’ ’ But there 
are some economic writers who prefer to use the word in 
its narrower meaning. For example, Professor Willford 
Isbell King, as late as 1910, considered “farmers, small 
merchants or shopkeepers, hotel proprietors and the like” 
as Entrepreneurs. 3 

E. Levasseur, in his “Elements of Political Economy” 
(p. 74) takes a slightly different view. He says: “Who¬ 
ever undertakes, on his own account, to fashion a product 
or execute a bit of work, is an entrepreneur. The entrepre¬ 
neur who labors alone without a body of men under him, 
or with the sole assistance of his family, or possibly one or 
two assistants, is an artisan. The entrepreneur who makes 
use of workmen is an employer; he exercises authority over 
his subordinates whom he pays, and the product of whose 
labor belongs to him according to agreement. There are 
employers of widely different means, some having but a 
few workmen, differing but little from artisans, others 
having hundreds or even thousands of workmen and em- 

2 “The Wages Question,” by Francis A. Walker, page 246. 

8 According to Professor King there were 9,350,000 entrepreneurs in 

the United States in 1910. 



52 


The New Capitalism 


ployees, and designated as entrepreneurs, captains of in¬ 
dustry, manufacturers, managers, or merchants. . . . 

Several entrepreneurs may, without subordinating them¬ 
selves to one another, unite their efforts and their capital 
in order to co-operate in the same industrial enterprise, and 
divide the profits; this is what is called association.” 

Professor Richard T. Ely, 4 says: “ The one who manages 
a business for himself was formerly called an undertaker 
or an adventurer, but the first word has been appropriated 
by one small class of business men, and the latter has 
acquired a new meaning, carrying with it the implication 
of rashness and even dishonesty. We have, consequently, 
been obliged to resort to the French language for a word 
to designate the person who organizes and directs the pro¬ 
ductive factors, and we call such a one an entrepreneur. 

‘ ‘ The function of the entrepreneur has become one of the 
most important in modern economic society. He has been 
well called a Captain of Industry, for he commands the 
industrial forces, and upon him, more than upon anyone 
else, rests the responsibility for success or failure. ”... 

The Period of Gestation 

At the time Professor Ely wrote the above (A. D. 1893), 
Capitalistic Association, as we know it today, had not yet 
been developed. There were Capitalists and there were 
Captains of Industry; but no Capitalistic Entrepreneurs, 
and no Capitalistic Entrepreneur System. 

“We find the assumption,” wrote Professor Walker, in 
1875, 5 “that the capitalist is the employer, the employer the 
capitalist, monstrously unreal. ... Of capitalists under 
our modern organization of industry, but a small minority 
employ labor; of employers, few but use capital far in 
excess of what they own.” 

With the organization of the United States Steel Corpo¬ 
ration (in 1901), the “assumption” at which Professor 
Walker expressed horror, became monstrously real. All 

4 “Outlines of Economics," p. 113. Published 1893. 

6 Even in his later economic writings, Professor Walker adhered to 
his original opinions on this point. 



53 


The Capitalistic Entrepreneurs 

the things that Professor Walker said could not happen, 
have come to pass. Our leading industries are no longer 
owned or controlled, or even run by the men who founded 
them, nor even by their descendants; in many cases not 
even the names of the founders remaining. Today “the 
Capitalist is the employer.” A single Capitalistic corpora¬ 
tion (United States Steel), employs 250,000 workmen—an 
army of men greater than the standing army of the United 
States. But worst of all, a “small minority” gained con¬ 
trol of practically all industries through their uncurbed 
power to “use capital far in execess of what they own.” 
Absolute control and definitive ownership of them has 
passed into the hands of a small group of Capitalistic 
Entrepreneurs. In a remarkably short time these Captains 
of Finance assumed the captaincy of all the industries, in 
fact of every remunerative enterprise. 

The Capitalistic Entrepreneurs, alias the 

“Big Interests” 

Thus the Capitalistic Entrepreneurs, sometimes denomi¬ 
nated as the “Big Interests” were brought into existence; 
by such procedure the Capitalistic Entrepreneur System— 
sometimes spoken of as “Big Business”—was established. 
“An entrepreneur,” says the dictionary, “is one who 
starts and conducts extensive industrial enterprises.” As 
a matter of fact the Capitalistic Entrepreneurs, with few 
exceptions, did not start the “extensive industrial enter¬ 
prises,” which they so supremely control today. 6 Most of 
them had never been in the plants whose ownership and 
control they took over. Mr. Morgan, it goes without saying, 
never worked in a mill, mine or factory. Mr. Gary has 
never in all his life made a pound of steel, as he himself 
naively admitted at one of the famous and now historic 
dinners, and at which he presided, given in the first decade 
of the twentieth century, and during the first decade of 
the United States Steel Corporation’s existence. 

8 This is shown more clearly in the chapter, “Labor, Capital and 
Brains.” 



54 


The New Capitalism 


“Is it any wonder,” said Judge Gary, “that such as I, 
coming a few years ago from another profession, having 
spent his time in other lines of activity, coming into this 
business without knowledge of the business or acquaintance 
with those connected with it, groping along in more or less 
uncertain paths, but eventually reaching the position which 
we have reached in our travels, so that we can have and 
do have absolute confidence in one another, willing to lay 
our business down upon the table for the inspection of our 
neighbor—is it any wonder that I should be elated, that I 
should be happy, that I should be proud of the fact that I 
am associated with such as you; that in representing the 
interests of a large corporation I can do business with so 
many men of prominence, education, high standing and 
repute in the community, feeling all the time that I and 
the interests I represent are absolutely safe in your hands. ’ 1 
(Hearings p. 1777.) 

“The Small Minority” 

The Capitalistic Entrepreneurs did not confine themselves 
to “industrial enterprises.” Everything out of which a 
profit could be made became an integral part of the Capi¬ 
talistic System, the nucleus of which, as I have already 
shown, is composed of a few thousand persons, more prop¬ 
erly speaking, a few hundred individuals representing 
families and estates. These few hundred, or thousand, as 
you choose, practically own and control: 

1: The Important Banks of the United States. 

2: The Transportation Systems. 

3. The Public Utilities. 

4: The Insurance Companies. 

5 : The Basic Materials, such as oil, lumber, coal, iron, etc. 

6: The Principal Industries. 

There may be some who will quarrel about the exact 
number constituting this small group; but they cannot deny 
the fact; nor is there any doubt about the ubiquity of the 
persons composing it. Let us take a concrete example, that 
of the Standard Oil Company, for which we have authentic 


The Capitalistic Entrepreneurs 55 

data. Henry H. Klein, Deputy Controller of Accounts in 
New York City, in his book “Standard Oil or the People,” 
gives a list of the principal stockholders in the Standard 
Oil Company before the Government “dissolution” suit 
was brought, August 19, 1907. According to Mr. Klein, 
nineteen stockholders held 53 percent (or 523,985 shares) 
of the Standard Oil stock. 

Mr. Klein also names forty-three other stockholders in 
Standard Oil whose holdings aggregate 94,141 shares. 
According to Mr. Klein, therefore, sixty-two persons owned 
an aggregate of 618,126 of the 983,383 outstanding shares 
of Standard Oil stock . 

Mr. Klein also speaks of the monopolies controlled by the 
Standard Oil Company: ‘ ‘ Petroleum, oil, gas, turpentine, 
natural gas, gasoline, vaseline, carbon paper, lubricating 
oil, paraffin, crude oil, benzine, naptha, and 200 other 
by-products of oil.” 

In addition to which he enumerates “other monopolies 
in which Standard Oil money is largely invested: Rail¬ 
roads, banks, insurance, coal, steel, iron, copper, lead, zinc, 
ships, lumber, waterpower, sugar, tobacco, electricity, coal 
products, agricultural implements, alcohol, rubber, leather, 
print paper, public lines corporations, glue, mica, auto¬ 
mobiles, rubber tires, express companies, gun powder, am¬ 
munition, candy, glucose, eggs, milk, steam pumps, type¬ 
writers, telephone, telegraph, matches, real estate, grain, tin, 
cement, ice, chewing gum, shoe machinery, ammonia, sul¬ 
phuric acid, washing powder, soups, white lead, oilcloth, 
linseed oil, cotton seed, reaping machinery, benzol, lard, 
coke, paving blocks, ploughs, salt, bread, threshing ma¬ 
chines, creosote, putty, coal tar.” 7 

The Financial Oligarchy 

That the control of all the industries, transportation 
systems, public utilities, etc., is through the instrumentality 
of a few powerful banks is so generally known that I do 
not consider it necessary to go into detail. It is impossible 


7 “Standard Oil or the People,” by Henry H. Klein, pp. 128, 129. 



56 


The New Capitalism 


to deny that there is a Money Trust—a financial oligarchy, 
composed of a small group of men who control the finances 
and financial resources of the nation. The evidence is over¬ 
whelming; official Government investigations have indubi¬ 
tably established the fact. Special Commissions, and Con¬ 
gressional Committees have published their reports. To 
deny the existence of a Money Trust and a financial 
oligarchy at this date is an act of stultification, and he who 
would dare attempt a denial in the face of all the accessible 
data and testimony, is either a fool or a knave or both, 
and an object of every decent man’s contempt. 

I shall, therefore, waste no time in proving what has 
been repeatedly and conclusively established beyond every 
possible doubt, and is generally known to all the people, 
viz., that by virtue of this absolute monopoly of money and 
complete control of the nation’s credit, this same small 
group of men has been enabled to organize powerful Trusts, 
thus gaining a monopolistic control of practically all the 
nation’s resources and productive properties. 

Wall Street—the Citadel 

Neither shall I waste much space in emphasizing that 
the absolute control and dictatorship of the nation’s money, 
centers in Wall Street. Senator La Follette, in a speech 
in the Senate of the United States, on the Winslow-Towns- 
end Bill, 8 said: 

“I have studied transportation for thirty years of my 
life, and I want to tell you that there was a time when real 
railroad men were at the head of the railroads of this coun¬ 
try. The financiers of Wall Street are running the rail¬ 
roads today. Beginning about 1900 a change came, and 
the railroad management of the country passed out of the 
hands of the men who had come up from the ranks, who 
were capable of running the railroads, and believed in 
balancing service against transportation charges. The man¬ 
agement of the railroads passed into the hands of the 

8 Delivered February 21 and 22, and published in the Congressional 
Record, March 14, 1921. 




The Capitalistic Entrepreneurs 57 

representatives of Wall Street, and from that hour on the 
railroads of the United States have not been run by men 
capable of managing the transportation of the country. 
They have been run, sir, by the representatives of the great 
financial houses, by the promoters, by the banks. 

“I should like to have time to hang on this wall a map 
I have in my committee room above here, showing what has 
happened in regard to railroad management in the last 
twenty years in the United States. It has passed into the 
hands of a few groups of financiers, the Morgan group at 
the head of the lot.” 

Senator La Follette declared that of the 600,000 stock¬ 
holders of the first class roads “wdiich roads represent 97 
percent of the traffic of the country,” less than 1.3 percent, 
or 8,301 control the stock. “But” he added, “we can by no 
means assume upon these facts that 8,301 individuals actu¬ 
ally share in the control of the transportation system. The 
real power which today controls the railroads of the United 
States is the group of a dozen New York financial institu¬ 
tions which make up the New York banking combine. 

“In this group are the following institutions: National 
Bank, The Equitable Trust Co., The American Surety Co., 
The National Security Co., The National Life Insurance 
Co., The Equitable Life Assurance Society of the United 
States, The Chase National Bank, The National City Bank, 
The Mechanics and Metals National Banks, The New York 
Trust Co. 

‘ ‘ Members of the boards of directors of these banks con¬ 
trol approximately 270 directorships of 93 class 1 railroads. 
The boards of the principal railroad systems do not often 
number more than 15 directors. The New York banks listed 
above, average from four to five members on the boards of 
each of the principal systems. 

“Taking the banks individually, the Guaranty Trust Co. 
has 50 railroad directorships; the National City Bank, 48; 
and the Equitable Trust Co., 34. These three banks have a 


58 


The New Capitalism 


total of 132 railroad directorships. The Guaranty Trust 
Co. has a director on each of the principal systems.” 9 

Interlocking Directorates 

The ingenious device through which a small group of 
men controls practically all the big banks, insurance com¬ 
panies, transportation systems, public utilities, mines, and 
other natural resources, raw materials and industries, is 
known as “interlocking directorates,” 10 that is to say, the 
principals ©f one corporation function also as officers, man¬ 
agers or directors in other corporations. This was brought 
out conspicuously during the investigation of the United 
States Steel Corporation in 1912. Exhibit E of the official 
report, gives an itemized list showing the “industrial cor¬ 
porations, railroads, traction, telegraph, express and steam¬ 
ship companies; the banks, insurance and trust companies 
of the United States,” of which the President and other 
directors of the Steel Corporation are officers or directors. 

But instead of filling many wearisome pages with a 
transcript from the official report, I prefer to illustrate the 
point by a brief extract from an article that recently 
appeared in a financial publication, The Annalist, (Sep¬ 
tember 19, 1921) and the author of which, John Oakwood, 
(a frequent contributor to The Annalist) cannot be accused 
of bias or sinister intent. In fact it was by way of lauda- 


9 Senator LaFollette also showed at considerable length, that the 
same group of banks and bankers that controls the railroads is also 
“heavily interested in the leading concerns which purchase railway 
supplies and equipment.” Senator LaFollette offered an Appendix to 
his speech, which contains exhibits and charts all based upon the latest 
data available. The Appendix alone covers 45 pages—pp. 4741 to 4786 
of the Congressional Record, March 14, 1921, Vol. 60, No. 8. 

10 Those who have a sense of humor will enjoy the following : “On 
December 5, 1921, a financial paper announced that Otto H. Kahn regret¬ 
fully resigned from the directorship of the Union Pacific Railroad 
“because of provisions of the Clayton act which so rigidly forbids inter¬ 
locking directorships.” (The Clayton act may indeed “rigidly forbid 
interlocking directorships,” but we all recall that a few years ago the 
United States Supreme Court ruthlessly “dissolved” the Standard Oil 
Company.) On December 8, 1921, I read that “William Rockefeller 
today applied to the Interstate Commerce Commission for permission 
to hold directorships in eighteen railroad companies.” On December 31, 
1921, the following dispatch from Washington: “All persons holding 
two or more places as officers and directors of interstate railroad cor¬ 
porations were given legal permission by the Interstate Commerce Com¬ 
mission today to hold their various positions indefinitely.” 



The Capitalistic Entrepreneurs 59 

tion, and as a tribute to the genius of J. Pierpont Morgan, 
that Mr. Oakwood delivered himself of the following: 

“When J. Pierpont Morgan was in power he ruled per¬ 
haps the greatest financial empire the world has ever seen. 
He was the senior autocrat of an inner group of banks and 
bankers who directly and indirectly exercised through par¬ 
tial or absolute control in many financial institutions 
through their stockholdings, through voting trusts, inter¬ 
locking directorates and many other devices, a vast domin¬ 
ion over business, industry and finance. 

“The members of this inner group commanded by Mor¬ 
gan held 118 directorships in 34 banks and trust companies, 
whose total resources amounted to $2,678,000,000. 

“They held 30 directorships in 10 insurance companies 
having total assets of $2,293,000,000. 

“They held 105 directorships in 32 transportation sys¬ 
tems with a total capitalization of $11,784,000,000, and a 
total mileage of 150,000. 

‘ ‘ They held 63 directorships in 24 producing and trading 
corporations with a total capitalization of $3,339,000,000. 

“They held 25 directorships in 12 public utility cor¬ 
porations having a total capitalization of $2,150,000,000. 
In all, in other words, they held at least 341 directorships 
in 112 corporations having aggregate resources or capitali¬ 
zation of $22,245,000,000, and how much more the record 
does not show T . 

“In addition this inner group, consisting of three great 
dominant banking houses, was intimately allied with three 
great investment houses, and in the course of eight years 
these six and their associates bought or underwrote nearly 
300 security issues totaling over $3,600,000,000, their opera¬ 
tions comprising virtually every financial operation of 
major importance conducted in the United States during 
the period. These operations were put through with the 
entire absence of competition. When Government investi¬ 
gation brought out and authenticated this much of the 


60 


The New Capitalism 


story, it irked the public mind as it had seldom been irked 
before, and Morgan was assailed as a money tyrant. ’ ’ Etc. 11 

The Autocratic Czars of Finance 

Those who are especially interested in this subject are 
referred to the report of the Pujo Committee (February 28, 
1913), which was appointed to investigate the Concentra¬ 
tion of Control of Money and Credit, and from which 1 
quote a few sentences: 

“Far more dangerous than all that has happened to us 
in the past in the way of elimination of competition in 
industry, is the control of credit through the domination of 
these groups over our banks and industries. It means that 
there can be no hope of revival of competition, and no new 
ventures on a scale commensurate with the needs of modern 
commerce, or that could live against existing combinations, 
without the consent of those who dominate these sources 
of credit. . . . 

“If the arteries of credit now clogged well-nigh to chok¬ 
ing by the obstructions created through the control of these 
groups, are opened so that they may be permitted freely to 
play their important part in the financial system, competi¬ 
tion in large enterprises will become possible, and business 
can be conducted on its merits instead of being subject to 
the tribute and the good will of this handful of self consti¬ 
tuted trustees of the national prosperity.” 12 


u “No Financial Moses Need Apply,” by John Oakwood. 

12 Report of the Pujo Commission; Chapter III, Section 17, pp. 159 
and 161. 



CHAPTER VII 

The Supreme April Fool Joke 


O N April 1, 1901, a great joke was played on the 
American people—the United States Steel Corpo¬ 
ration was organized. Ordinary first of April jokes 
amuse for the moment, perhaps hurt for an hour—par¬ 
ticularly if the innocent victim has kicked a brick concealed 
under a hat—and are forgotten in a day. Not so the 
Supreme Joke of April 1, 1901. Conscious of what was 
being done to them, yet helpless to interfere, or stop it, the 
American people gathered no amusement out of the joke 
perpetrated against them. The hurt is still there, for they 
didn’t stub their toes against a concealed brick; it was their 
heads that were seriously injured by millions of bricks 
hurled viciously, wantonly, flagrantly and defiantly, and 
none to stop the performance. The shower of bricks still 
continues, and the backs of the people are bent and lame 
from the effect of dodging. The Supreme April Fool Joke 
of 1901 is bitterly remembered, and the whole nation is 
today suffering from its cumulative evil effects. 

Preparing the Way 

In the course of this book I shall have occasion to make 
frequent mention of the United States Steel Corporation, 
or to repeatedly refer to its organization, policies, etc., not 
because I have singled out this gigantic organization with 
any sinister design or malicious intent, but rather because 
the United States Steel Corporation was the first real Trust 
—organized in the LTnited States, and is, therefore, the 
parent Trust, and has been the model for all other Trusts, 
combines and consolidations since. The United States Steel 
Corporation completely illustrates not only the tendencies 


61 


62 


The New Capitalism 


but also the logical development of modern Capitalistic 
control of industries in general. Besides, the details enter¬ 
ing into the consolidation of the steel industry are set forth 
with great perspicacity in the reports of the Commissioner 
of Corporations and the Senate Committee that investigated 
the consolidation ten years after its organization. Conse¬ 
quently the exhaustive official reports pertaining to this 
particular corporation are a safeguard against exaggerated 
statements that one might be tempted to make when dealing 
with the subject of Trusts in general. Moreover, no single 
corporation has been given a wider publicity, in the daily 
press, as well as in the weekly and monthly periodicals. 
And last, but not least, its leading officials have written 
articles and given numerous interviews expressing their 
opinions, views and sentiments—and are known to the 
public at large. Any statement I may make concerning the 
United States Steel Corporation can easily be verified; the 
records are open to whoever may care to search them. 

Not a Neiv Thing 

Trusts, combines and monopolies are not a modern 
invention. We read that as early as A. D. 1552 “the diet 
of Nuremberg investigated pools, mergers and trusts.’’ 
Monopolistic tendencies are discernable all through the eco¬ 
nomic history of the world. Syndicates, pools, mergers, 
combines and monopolies easily suggested themselves to 
those in an advantageous position. While in the United 
States, immediately following the Civil War and even prior 
thereto, there have been isolated instances of attempts at a 
greater control of certain products or industries by groups 
of individuals—Trusts, in the insidious sense of today, did 
not come into marked existence until several decades later. 

We do not often hear the words Trusts, combines and 
monopolies these days. As if by common consent modern 
economic writers rarely mention them; financial and com¬ 
mercial experts prefer not to speak of such things. And 
yet there was a time—not so long ago—when Trusts, com¬ 
bines and monopolies were denounced as evil things, and 



63 


The Supreme April Fool Joke 

those who constituted or created, or were identified with 
them, as wicked men. Yet in the years when they were 
most violently attacked, Trusts, combines and monopolies 
had not done one-half the economic harm that can be predi¬ 
cated against them today. Their tendencies, rather than 
tlieir deeds, were criticised in those earlier years. 

The years 1880 to 1900 1 can be said to have been the 
experimental years as regards Trusts, combines, and the 
monopolistic merging and consolidation of industries, to 
effect which financial pools and syndicates were formed. 
But each combination in a given line of industry was more 
or less independent and in actual competition with some 
other combination. To be sure there were “secret” and 
“gentlemen’s” agreements, both as regards production and 
prices, but frequently one combine less scrupulous than its 
rival, would take an unfair advantage of its competitor, 
thus weakening the latter, even bringing him to the verge 
of ruin. It was in this period that we heard so much of 
special advantages, rebates, and so forth, granted to certain 
powerful corporations. Standard Oil, you may recall, was 
one of the greatest beneficiaries of the system of railroad 
rebates. 


The New Era 

The year 1901 ushered in the dawn of a New Trust Era, 
whose possibilities were exemplified in the organization of 
the United States Steel Corporation. That the principal 
aims of the Trust consolidation of industrial plants from 
the very beginning were to eliminate competition, control 
output, and fix, or rather increase, prices, is so well under¬ 
stood as to call for no detailed proof at this late date. For 
the benefit, however, of those doubting Thomases who, for 
obvious reasons, prefer to enter a denial, I will quote a 
statement made by no less a person than Charles M. Schwab: 

1 The Standard Oil Co. was organized in 1882; the American Cotton 
Oil Trust in 1884 ; the National Linseed Oil Trust in 1885 ; the American 
Sugar Refining Co. in 1887; the American Tobacco Co. in 1890 ; the 
General Electric Co. and the United States Rubber Co. in 1892. These 
are a few of the more important Trusts and monopolies formed during 
the last two decades of the twentieth century. 



64 


The New Capitalism 


“No man has a clearer appreciation than myself of the 
evil that lurked in the trust scheme. ... It was founded 
on misconception and promoted along the lines of self- 
destruction. Its fundamental principles were the restraint 
of trade, increase of price and the throttling of competition 
—a trinity that would wreck any proposition, business, 
political, or social.” 2 

The Pivotal Point 

"Whether the throttling of competition, the limiting of 
output and increasing prices be called the fundamental 
principles or the principal by-products of Trust combines- 
and consolidations, the important thing to remember is that 
they were antedated by the overvaluation and overcapi¬ 
talization of the properties themselves. 

In this chapter I shall confine myself to those points that 
are relevant to my purpose, leaving untouched matters not 
immediately germane to the scope of this book. My avowed 
purpose is to show that overcapitalization is the scarlet 
cloak that covers a multitude of Capitalistic sins. To show 
this authoritatively I propose to give a few fragmentary 
excerpts from official reports with regard to the United 
States Steel Corporation, and from which the reader may 
draw his own conclusions. 

The Consolidation Scheme 

Herbert Knox Smith, Commissioner of Corporations, in 
his letter of Submittal 3 (July 11, 1911) says: 

“The Steel Industry was the culmination and the result 
of a remarkable and even dramatic period in the steel 
industry. Until about 1898 the bulk of the business was 
distributed among a very considerable number of concerns. 
There was sharp competition, modified by frequent pools 
and price agreements of greater or less duration and 
effectiveness. 

2 Report No. 1127, House of Representatives, 62nd Congress, Second 
Session, Investigation of United States Steel Corporation. (Referred 
to the House Calendar and ordered to he printed, August 2, 1912.) 

3 Report of the Commissioner of Corporations on the Steel Industry. 
(Part 1.) 



65 


The Supreme April Fool Joke 

“In 1898 began an era of great consolidations, with 
capitalizations ranging from $30,000,000 to $100,000,000, 
usually mergers of many smaller companies. In most of 
these, as in the earlier price agreements, the ruling motive 
was the removal of competition.” 

But these mergers did not immediately produce the 
desired effect. The Steel companies were still independent 
of and in competition with each other. “There was sud¬ 
denly revealed to the industry,” says the Commissioner of 
Corporations in his letter of Submittal, “what the trade 
press called ‘ the impending struggle of the giants, ’ a com¬ 
bat between great concerns, who, under such circumstances, 
might be forced to work out, in rigorous competition, the 
survival of the fittest. . . . 

‘ ‘ Steel men and the various associated financial interests, 
regarded the situation with much alarm. In such a com¬ 
petition they saw a great danger to their businesses, especi¬ 
ally to the profitable gross monopolies in certain branches 
of the trade. In averting it they saw a great opportunity. 
The extraordinary era of industrial expansion was still on; 
the public was still largely absorbing large issues of 
securities. By merging these conflicting interests into a 
great corporation, the threatened ‘steel war’ would be 
averted, and great profits realized from the flotation of 
securities. 

“With amazing swiftness, in a few weeks, the United 
States Steel Corporation was thus organized, and began 
business on April 1, 1901. Its total capitalization was a 
little over $1,402,000,000 (including bonds). . . . 

“Thus competition between these concerns was elimi¬ 
nated, while enormous profits were made from the flotation 
of securities, with, also, an unparalleled stock commission 
to the underwriting syndicate, which netted a clear profit 
of about $62,500,000 in cash.” 4 


4 It is pretty generally known that the firm of J. P. Morgan & Co. 
was the active underwriting syndicate, and J. P. Morgan the directing 
genius in the consolidation of the Steel Corporation. 



66 


The New Capitalism 


The Capitalistic Deluge 

The report of the Commissioner of Corporations sets forth 
that the value of all the tangible properties consolidated 
into the United States Steel Corporation, making a liberal 
allowance for everything, did not exceed $682,000,000, and 
‘‘that the entire issue of approximately $508,000,000 of 
common stock of the Steel Corporation in 1901, had no 
physical property back of it, and also a considerable frac¬ 
tion, say from one-fifth to two-fifths, of the preferred stock, 
was likewise unprotected by physical properties. Even 
granting that there may have been a considerable value on 
intangible considerations, it is necessarily clear that at last 
the entire issue of common stock, except in so far as what 
may be termed ‘merger value’ may be considered, repre¬ 
sented nothing but ‘water’.” 

“In some instances stocks were not ‘watered’ in the ordi¬ 
nary acceptance of that term; they were literally deluged. 
The cost of constructing, or reproducing the several plants 
constituting the combine, was inconsequential as com¬ 
pared with the value of this new device for enjoying with 
immunity an old and hitherto forbidden privilege—an abso¬ 
lute monopoly in a valuable and necessary article of com¬ 
merce. ” (House of Representatives Report No. 1127, p. 11.) 

How It Was Done 

Among the ten or twelve competing steel corporations 
consolidated into the United States Steel Corporation was 
the National Tube Company operating 17 mills. 

“Before acquiring these plants, Morgan and Company 
employed Julian Kennedy, of Pittsburgh, a most capable 
engineer of long experience in the construction and opera¬ 
tion of steel works both in America and Europe and Asia, 
and instructed him to make a careful estimate of the 
plants. ... He reported to Mr. Morgan that the actual 
value of these plants did not exceed $19,000,000, and that 
the owners were demoralized and disheartened. . . . 

“Undismayed by this dismal report, J. P. Morgan & Co., 


67 


The Supreme April Fool Joke 

with an amazing audacity, launched this new $19,000,000 
monopoly on its course with a total capitalization of 
$80,000,000, and for their valued services in thus restraining 
the previously obnoxious and ‘destructive competition’ 
received as compensation securities of this concern aggre¬ 
gating $20,000,000, or one million more than the total value 
of all the 17 tube plants, one in need of reconstruction and 
six ‘old style,’ ‘isolated’ and ‘not equipped with modern 
facilities,’ or on the verge of being ‘shut down and dis¬ 
mantled. ’ 

“To the uninitiated this would appear to be an utterly 
impossible task. Under the circumstances, the sudden and 
instant prosperity of the National Tube Co., is an object 
lesson of no little moment, illustrating the immense power 
of an absolute monopoly, no matter how inferior or defect¬ 
ive or obsolete the plants, or how incapable the manage¬ 
ment and operation. With all the essential elements of 
failure, antiquated plants, badly located and burdened by 
the huge overcapitalization, nevertheless: 

“ ‘The National Tube Co. was one of the most successful 
concerns of the United States Steel Corporation, and by the 
time it was acquired by the latter its common stock had a 
high market value because of the Company’s earning power. 
For the year ending June 30, 1900, the profits of this com¬ 
pany, after deducting all expenses, exceeded $14,600,000, 
and after deduction for depreciation, bad debts, etc., the 
net earnings were $13,878,000.’ This, it will be seen, was 
at the rate of 35 per cent on the $40,000,000 of preferred 
stock outstanding, and the rate of 17 percent on the total 
capitalization of $80,000,000 or more than 73 per cent of 
the actual value of the entire company. 

“In order to illustrate the purposes, methods, and effect 
of such consolidations, w r e have described somewhat in 
detail the organization and operation of the National 
Tube Co. In discussing the other concerns forming the 
so-called ‘Morgan group,’ this is not necessary, owing to 
the fact that the same scheme for throwing together into 
one mass ‘of unrelated units,’ efficient and inefficient, new 


68 


The New Capitalism 


and obsolete plants under one control and into one heavily 
overcapitalized corporation, characterized all the opera¬ 
tions of J. P. Morgan & Co. in the Steel Industry.”* 

Pointing a Moral 

It would serve no particular purpose at this time to give 
all the figures pertaining to all of the companies merged 
and consolidated into the United States Steel Corporation. 
The history of each is the same; only the amount of the 
inflation in each is different. Thus, for example: 

Mr. Morgan’s syndicate accepted the Federal Steel Co., 
on a basis of less than $33,000,000 of actual property, 
against which it authorized an issue of $200,000,000. 

Against the properties of the Carnegie Co., whose actual 
or tangible value its owner had sworn did not exceed 
$75,610,104.06, and whose total assets, according to the 
balance sheets of the Carnegie Co. (Ltd.) on March 1, 1900, 
amounted to $100,416,802.43, the United States Steel Cor¬ 
poration issued $492,000,000 of its securities. 

Exit the Ironmaster—Enter the Capitalistic 

Entrepreneur 

“Carnegie,” says the Report (No. 1127, p. 41), “seems 
to have remained in blissful ignorance of the revolution in 
methods which characterized the transfer of the seat of the 
steel industry from Pittsburgh to Wall Street, and unmind¬ 
ful of the enormous sums his competitors were amassing 
by the capitalization of their various companies. He dis¬ 
plays a quaint indifference even to the advantages incident 
to doing business as a corporation. ‘If,’ says he, ‘you want 
to keep this country ahead in steel, you cannot depend 
upon great “Combinations.” ’ ” (Hearings, p. 2419.) 

“What is more remarkable, these fabulous returns from 
stock jobbing operations do not seem to have abated in 
the least ‘the iron master’s’ inveterate and old familiar 
antipathy to gambling institutions generally. 

5 Report No. 1127, Investigation of United States Steel Corporation, 
pp. 12-15. 



69 


The Supreme April Fool Joke 

“I made them (shares in the Carnegie Co.) a thousand 
dollars so as not to render them gambling instruments in 
the Stock Exchange, . . . because I do not want to 

have partners that would be tempted to get into speculation. 
I never bought a share in my life on the Stock Exchange. 
I never sold a share. I have been, you might say, a mono¬ 
maniac on the subject of speculation. I have never touched 
it ... I want to say that I am not a stock jobber, and 
I never in my life associated with stock gamblers. . . . 

I think that the common stock gambler is one of the worst 
institutions that a country can have. They are parasites 
feeding upon values and creating none.” (Carnegie, Hear¬ 
ings, p. 2538.) 

The conflict between the Carnegie Co. and the “interests 
behind the Steel Corporation 7 ’ is described in the Report as 
a contest “between fabricators of steel and fabricators of 
securities; between makers of billets and makers of bonds. 77 

Turning One Dollar into Five, Plus 

“The Commissioner of Corporations gives an interesting 
account of the method by which these companies ‘capital¬ 
ized 7 and recapitalized their profits: 

“In the organization of the American Steel and Wire Co., 
of Illinois, in March, 1898, each $100 of the stock of the 
Consolidated Steel and Wire Co., one of the constituent 
concerns (and itself a consolidation of seven plants), received 
$175 of preferred stock and $175 in common stock of the 
new company, or $350 of new securities for every $100 of 
the old. (See Com. Report, p. 6.) 

“A few months later each $100 of the preferred stock 
of the American Steel and Wire Co. of Illinois, received 
$100 in preferred stock and $60 in common stock, while 
each of the Illinois concern’s common stock received $120 
in common stock of the New Jersey concern. Thus each 
$100 stock of the old consolidation company became $490 
in the stock of the New Jersey concern. In the final merger 
of the latter company into the Steel Corporation, each $100 
par value of the preferred stock, received $117.50 in pre¬ 
ferred stock of the Steel Corporation, while each $100 (par 


70 


The New Capitalism 


value) of the common stock received $102.50 in United 
States Steel common stock. In other words, every $100 
par value of the stock of the Consolidated Steel & Wire Co. 
was finally transmuted into $528.50 par of Steel Corpora¬ 
tion securities.’’ (Com. report, p. 176.) 

Capitalizing Non-Existent Assets 

“So well satisfied were the syndicates that had evolved 
this plan for what Mr. Converse calls ‘community of own¬ 
ership or unified control over great industries as the only 
means of restraining destructive competition’ that they 
began to treat this ingenious and illegal device as a lawful 
institution, no doubt reassured in this position by the fail¬ 
ure of the Government to proceed against them, and in 
their future operations they failed to discriminate between 
the cost of construction or the intrinsic value of these prop¬ 
erties and earning capacity due entirely to ‘community’ of 
ownership and unified control or ‘potential value’—as 
James Gayley calls it. This ‘combination value’ of the 
various companies since acquired by the Steel Corporation, 
has been capitalized as a tangible asset, stocks issued and 
bonds sold, all based upon this new device, as a perfect and 
permanent evasion of all laws prohibiting combinations in 
restraint of trade. 

“The earning power of the American Steel and Wire, the 
Tin Plate, National Tube and other companies, was enor¬ 
mously increased by virtue of the complete monopoly which 
resulted from assembling practically all of the manufac¬ 
turers of such commodities as horseshoes, nails, fencing 
wire, sheet steel, and tin plate for roofing or kitchen 
utensils, under one control. 

‘ ‘ The gains incident to the difference in the price of such 
things sold under competitive and monopolistic conditions, 
were but a small part of the amount actually secured by 
these companies and by the Morgan-Moore and other 
syndicates. 

“To illustrate: If under normal conditions these vari- 


71 


The Supreme April Fool Joke 

ous plants acting separately, could earn 10 per cent, and 
acting collectively they could earn 100 per cent, then by 
discarding any form of physical valuation, either the orig¬ 
inal cost or the cost of reproduction, and taking as their 
sole standard the new and artificially created earning 
power, due entirely to the consolidation, and for that reason 
aptly termed, ‘combination value,’ then ten assembled 
plants were worth ten times as much with the acquired 
monopoly of the business as the same ten plants would have 
been worth acting separately and in competition. And 
these immense aggregations were created and capitalized 
upon that principle; neither in the incorporation of the 
Steel Corporation nor of the subsidiaries which preceded 
it, now under discussion, has there been any serious attempt 
to deny that the greater part of the securities of these com¬ 
panies has any other element of value. 

“ ‘Everybody knows,’ said W. H. Moore, of the Moore 
syndicate, ‘what they are getting when they get common 
stock (in the Tin Plate Co.). Thej^ know they are not 
getting anything that represents assets’.” (Reports Indus¬ 
trial Commission, vol. 1, p. 932; hearing pt. 63.) 6 

The Established Fact 

But I am not interested in tracing the genesis of the 
United States Steel Corporation, and shall not particularly 
concern myself at this time with all the successive steps and 
immediate processes of its metamorphosis, such as the pools 
and agreements, sundry schemes, covenants and devices, 
employed by way of creating monopolies, restraining or 
preventing competition, artificially increasing prices, con 
trolling or curtailing output, etc. The one thing I want to 
emphasize is the fact of overcapitalization, and if the reader 
will keep the salient points of these few extracts from the 
official reports with regard to the United States Steel Cor¬ 
poration before him, he will be able to follow the succeeding 
chapters with an increase of interest and understanding. 


8 Report No. 1127, Investigation of the United States Steel Corporation. 



CHAPTER VIII 


The Principle of Inflation 


I T was not long before the sundry Capitalistic explana¬ 
tions advanced to justify the outrageous overcapitali¬ 
zation of the big corporation, viz., ‘ ‘ monopoly, ” “ com¬ 
munity of ownership and unified control,” “ potential 
value,” “merger value,” “combination value” and their 
variants, were discarded by economic writers who favored 
and defended Trusts and all they implied, for the reason 
that it was soon discovered that mention of these things 
was as a red rag to the general public. Reluctantly at first, 
it was admitted that what had really been capitalized was 
the immense profits of those corporations. Mr. Gary him¬ 
self, under pressure, admitted before the Ways and Means 
Committee, that it wasn’t plant values that had been 
capitalized—but profits} 

Professor Edward Sherwood Mead, of the Wharton 
School of Finance and Economy, of the University of 
Pennsylvania, in his “Trust Finance,” 1 2 says, (p. 291) : 

“The capitalization of a corporation is the face or par 
value of the stocks and bonds which the corporation has 
issued. . . . There is general agreement upon this 

definition of capitalization, and its discussion need not, 
therefore, detain us.” . . . 

“We may define overcapitalization as that condition in 
which the par value of the securities of a company exceeds 
their actual value based on profits.” 

It is not necessary to give definitions from other economic 

1 Mr. Cochran. Of this whole sum of $1,782,000,000 was not 
$1,000,000,000 at least capitalized profits, as distinguished from original 
investment? 

Mr. Gary. I shall have to guess at that; but I shall guess yes, 
including increases in value. (See Hearings Ways and Means Com¬ 
mittee, 1908 and 1909; see Hearings, pt. 63, p. 240, Appendix.) 

2 Chapter XVI “The Capitalization of Corporations.” 


72 



73 


The Principle of Inflation 

writers, for they are practically agreed with regard to the 
essentials, differing only in phraseology. According to 
Professor Mead, the difference between capitalization and 
overcapitalization is one of degree only. In reality there 
is no distinction between the two. Pie considers an issue 
of stocks, no matter how much in excess of actual assets, as 
legitimate capitalization. Only if the par value of the 
securities of a company exceeds the actual value of said 
securities, based on profits, does he consider it overcapi¬ 
talization. 


Actual Value Not Considered 

It is to be noted that Professor Mead does not so much 
as mention the actual value of the properties; he speaks 
only of the values of securities based on profits. According 
to him, and most other economic writers, actual value of 
properties does not enter into the equation; in fact it is 
entirely ignored. Inflated valuation based on profits is 
the basis of the modern system of overcapitalization. An 
issue of securities, therefore, is based not upon the actual 
value of assets—but upon an arbitrary inflation of value 
—a fictitious valuation. But “capitalization of profits” 
had a bad sound, and so a less irritating expression was 
coined and shoved into currency. Today ‘ ‘ earning power ’ ’ 
is the generally accepted basis for overcapitalization. 

What is Earning Power? 

The normal earning power of capital is, as a rule, com¬ 
puted at six percent. I do not know precisely just why 
six percent was hit upon as the measure of earning capacity, 
but assume it is because—generally speaking—six percent 
has been considered as a normal rate of interest, and also 
as a fair return upon an investment. At any rate, six 
percent 3 of earning power is the basis upon which modern 

3 So large were the earnings during the war that the six percent 
basis was, in a number of cases, raised to eight percent. Professor 
H. J. Davenport, in an article in The Dial (October 4, 1919) tells of a 
certain rubber company whose “surplus earnings for the year 1917-1918 
were equivalent to about thirty percent on the common stock ; and sub¬ 
stantially the same for the first half of 1919.” 




74 


The New Capitalism 


capitalization is computed. And this method of figuring has 
yielded the nefarious system of overcapitalization. 

Let me illustrate: If a plant actually worth $500,000, 
has made a profit of $60,000, that $60,000 is computed not 
as twelve percent on $500,000, but as being the equivalent 
of six percent on one million dollars. This showing, accord¬ 
ing to Capitalistic logic, or the higher mathematics of the 
Capitalistic System, justifies capitalizing the plant, orig¬ 
inally worth $500,000, at a million dollars. 

The following year, let us say, the profits of the same 
plant are $120,000. This under the Capitalistic System of 
computing “earnings” would not be considered as twenty- 
four percent on $500,000, or twelve percent on one million, 
but as if six percent had been earned on two million dol¬ 
lars; and therefore an increase in the capitalization up to 
two million would be perfectly justified; for, as Professor 
Mead declares (p. 298), capitalization contains “two prac¬ 
tical implications: First, that the capitalization of a new 
company shall be based upon a conservative estimate of its 
earning power; and second, that this capital shall be in¬ 
creased from time to time as increasing earnings warrant. ? 94 

What If the “Earning Power” Decreases f 

If “earning power” computed at six percent is a logical 
basis for fixing the amount of the capitalization of an 
industry or enterprise, then in the event of a decrease in 
the earning power the capitalization should be reduced. 
But no such phenomenon is observable. Instead of reduc¬ 
ing the capitalization—the value of the stock is permitted 
to go down, and whenever stocks tumble the bona fide 
investors are made to bear the brunt of it. They are sub¬ 
jected to the double penalty of not receiving any dividends 
besides suffering a shrinkage in the market value of their 
securities. 

In the recent admitted decline in the earning power of 

4 The enormous increase in the issuance of industrial securities 
during - the past four or five years can be easily explained by the 
enormous increase in the “earning power,” i.e. in the profits of the 
industries. 



The Principle of Inflation 


75 


practically all corporations one looked in vain for any 
marked decrease in the amount of capitalization. Evidently 
basing capitalization on the principle of “earning power” 
doesn’t work the other way round. Far from reducing 
capitalization, many of the leading corporations have in¬ 
creased their stock and bond issues, as these few items, 
taken at random from hundreds I have collected, clearly 
show: 


1: * ‘ The Sugar Manufactur¬ 
ing Co. has filed notification of 
an increase in the capital stock 
from $60,000,000 to $90,000,000, 
and announces a stock dividend 
of $30,000,000. ’ ’ (December 13, 
1920.) 

2: The New York Stock Ex¬ 
change has received notice from 
the Wickwire-Spencer Steel Cor¬ 
poration of a proposed increase 
in its preferred stock from 
$7,500,000 to $10,000,000. (Janu¬ 
ary 26, 1921.) 

3: The New England Tele¬ 
graph and Telephone Company 
has called a special meeting of 
stockholders for New York on 
February 16 to act upon the in¬ 
crease of the capital stock from 
$75,000,000 to $100,00 0,000. 
Transfer books will be closed 
February 7, and reopened Feb¬ 
ruary 17. (January 26, 1921.) 

4: The Clay County & St. 
Joseph Railroad Company, oper¬ 
ating an electric bus between 
Kansas City, St. Joseph and Ex¬ 
celsior Springs, has asked the 
state public service commission 
for authority to issue $6,000,000 
of 7 percent preferred cumulat¬ 
ive stock and $4,000,000 of com¬ 
mon stock. (January 26, 1921.) 

5: Springfield, Ill., May 26.— 
The Peoples ’ Gas & Electric Com¬ 
pany of Savanna today asked the 
Public Utilities Commission for 
authority to issue $50,000 7 per¬ 
cent preferred stock. The money 
is to be used in extension, im¬ 


provement and retiring outstand¬ 
ing notes. (May 27, 1921.) 

6: “ Notice has been received 
by the New York Stock Exchange 
from the Milwaukee Electric Rail¬ 
way & Light Co., that the com¬ 
pany *s authorized issue of pre¬ 
ferred stock has been increased 
from $4,500,000 to $20,000,000. 
No details of the purpose of the 
proposed increase have been made 
public.” (June 9, 1921.) 

7: ‘ 1 At the special stockhold¬ 
ers J meeting held in Wilmington, 
Del., on May 20 last, the capitali¬ 
zation of the Boone Oil Company 
was increased $6,000,000, consist¬ 
ing of $3,000,000 of nine percent 
cumulative convertible class ‘A* 
stock and $3,000,000 of common 
stock.” (June 9, 1921.) 

8: The Winther Moter Truck 
Company has changed its name to 
Winthers Motors, Inc., and the 
capital has been increased from 
$22,000,000 to $61,000,000. The 
office of the company is at Ken¬ 
osha, Wis. (July 19, 1921.) 

9: The Wheeling & Lake Erie 
Railroad yesterday applied for 
authority to issue $451,000 of 6 
percent refunding mortgage 
bonds to reimburse its treasury 
for expenditures made for addi¬ 
tions and improvements. (July 
20, 1921.) 

10: A special meeting of stock¬ 
holders of the Delaware & Lacka¬ 
wanna Railroad has been called 
for today for the purpose of au¬ 
thorizing an increase in the road’s 


76 


The New Capitalism 


capitalization by $45,000,000. A 
stock dividend of 100 percent 
probably will be declared by the 
directors at their next regular 
meeting, July .28, provided the 
shareholders approve the increase 
in capitalization. There is 
$42,227,000 stock outstanding. 
Last April the Interstate Com¬ 
merce Commission approved the 
proposal of the road to capitalize 
part of its surplus, which amounts 
to about $90,000,000. (July 21, 
1921.) 

11: The St. Louis & San Fran¬ 
cisco Railroad has applied to the 
state public service commission 
of Missouri for authority to issue 
$4,578,000 6 percent prior lien 


mortgage bonds. Of this amount 
$4,392,000 are to reimburse the 
treasury of the company for im¬ 
provement expenses and acqui¬ 
sition of new property, and 
$180,000 for refunding purposes. 
(August 12, 1921.) 

12: B. B. & R. Knight, Inc., 
has notified the Massachusetts 
commissioner of corporations of 
an increase in its authorized cap¬ 
ital stock from $5,000,000 to 
$8,000,000 by authorization of 
25,000 additional shares of no 
par common and 30,000 addi¬ 
tional shares, 7 percent second 
preferred, $100 par. (August 15, 
1921.) 


A Fair Question 

If overcapitalization, based on “ earning power” is de¬ 
fensible, then I ask you in all sincerity, why is not the 
largest industry in the United States overcapitalized? Or 
let me put it thus: Why is the largest industry in the 
United States not capitalized on the basis of its earning 
power the same as every other industry? I mean the 
Banking industry. 

It is rather singular that the banks—the primary and 
basic industry of the Capitalistic group—-are neither over¬ 
capitalized nor capitalized on the basis of their earning 
power. The capitalization of all the national banks in the 
United States is somewhat in excess of one billion dollars. 
On June 30, 1920, there were 8,019 banks with a total cap¬ 
italization of $1,220,781,000, and a surplus of $984,977,000. 
The authorized capital of a single industrial corporation— 
the United States Steel Corporation—is greater by nearly 
a quarter of a billion dollars than the capitalization of all 
the national banks. 

Why are not the banks overcapitalized? Why are they 
not capitalized on the basis of earning power? For surely 
every bank has “earning power.” Indeed the earning 
power of capital is the very essence of the business of 


The Principle of Inflation 


77 


banking. Without this earning power of capital, banking 
institutions would not be possible, and could not exist. If, 
basing the capitalization, or overcapitalization, of an indus¬ 
try on its earning power can be defended at all, it could 
certainly be justified in the case of banks. Yet the one 
industry whose very life and continued existence depends 
on the earning power of its capital, is excluded from over- 
capitalization on that basis. This is all the more remark¬ 
able for in the case of a bank the actual earning power is 
inherent in the capital employed—is created by the use of 
the capital itself; whereas, in an industry, the “earning 
power” is not inherent in the capital employed, in fact 
does not exist until the productive power of labor and the 
purchasing power of the public are brought into play. The 
earning power of the banks can be best shown by the actual 
earnings, which, according to Government reports, were in 
excess of forty percent in 1920. This showing of “earning 
power” would justify raising the capitalization of the 
banks to about six billion dollars. 

Why? 

While it is somewhat premature here, since I intend to 
treat of stock transactions in another chapter, nevertheless 
it is opportune to ask: Why does not the market value of 
stocks of banks bought and sold in the stock market 
fluctuate as violently as the stocks of industrial and other 
corporations ? Why is there no marked speculative market 
for bank stocks as there is for industrial stocks ? Why are 
bank stocks not sold on margin? 

To all these ivhys you may sweepingly answer that the 
federal and state laws do not permit the overcapitalization 
of banks, nor gambling in their stocks. Quite true! but 
why is the legitimate capitalization of banks a matter of 
so great concern to federal and state governments? And 
why do bank officials, governors of stock exchanges, and 
brokers, assume a different attitude towards bank stocks 
than towards industrial and other stocks? Why? Why? 
Why ? 


78 


The New Capitalism 


‘‘Earning Power”—A Myth 

What the Capitalistic Entrepreneurs have been pleased 
to call the “earning power” of capital, is, in reality, a 
myth. Capital, except in the case of banks, has no earning 
power of its own. Not until after Labor’s productive power, 
and Labor’s—that is to say, the public’s-—purchasing power, 
have been brought into play does Capital take on an earning 
power. If the Capitalistic Entrepreneurs were disposed to 
be honest and call things by their right name they would, 
in conscience, be compelled to say that the capitalization, 
or rather overcapitalization, of all the industries, is based 
not on Capital’s earning power, but on Labor’s productive 
power, plus Labor’s (that is, the public’s) purchasing 
power. The overcapitalization of the industries of the 
United States on the basis of earning power, is, therefore, 
a compliment to Labor’s productive power. 

Here we have one explanation for the so-called struggle 
between Capital and Labor, more properly speaking, the 
struggle between the Capitalistic Entrepreneurs and the 
wage earners. If six percent is considered as a fair return 
on the capital actually invested in a given industry; and 
the owners of said industry capitalize their productive 
properties for an amount two to four times greater than the 
amount actually invested, they practically admit (though 
they have cleverly disguised and camouflaged the fact) that 
Labor’s productive power, that is the profits derived from 
Labor’s production, is the foundation of their wealth and 
the source of their capital accumulations. Wage earners, 
in a blundering sort of fashion, realize that they are being 
exploited by these Capitalistic Entrepreneurs, who insist 
on keeping for themselves all the profits derived from 
Labor’s productive, plus its purchasing, power. Labor be¬ 
lieves that it is entitled to at least a share of these enormous 
profits derived from its joint productive ability and pur¬ 
chasing power. Labor’s fight is, therefore, for a more 
equitable distribution of profits, expressed in terms of 



The Principle of Inflation 


79 


higher wages. But I shall have more to say on this point 
further along in my book. 

“Good Will”—What is Itt 

In some businesses instead of capitalizing profits under 
the guise of “earning power” it has been deemed prefer¬ 
able to capitalize them as “good will.” “Earning power” 
is found generally in corporations that employ productive 
labor; “good will” is generally employed in businesses 
where productive labor as such is not so much in evidence, 
as, for example, in merchandising establishments, such 
as big department stores, the mail order concerns, etc. 
However it is only a different name for the same disease. 
Like “earning power” the item of “good will” is used 
to cover the watered stock of excessively overcapitalized 
corporations. 5 

“According to the law of most of the United States, and 
Great Britain,” says Arthur Lowes Dickinson, “capital 
stock cannot be issued except for value; but this legal dif¬ 
ficulty is avoided by issuing it in accordance with a contract 
in the body of which is contained a statement as to value 
conformable to the stock or other securities to be issued, 
and the excess of this value over that of the actual tangible 
assets acquired is often euphemistically entitled ‘good 
will \ . . . 

“While this fiction has so far maintained its legal sanc¬ 
tion, it still remains doubtful how far an issue of stock for 
a cash consideration clearly less than its par value is legal, 
or whether if so issued the purchaser or broker is not liable 
to pay up the w T hole of the discount, at any rate on liqui¬ 
dation of the corporation.” 6 * 8 

5 In many cases of which overcapitalization can be predicated, 

Patents appear on the books as an asset, against which vast amounts 
of securities have been issued. I shall not deny that a Patent is an 

asset; indeed were it not for his Patent many an inventor or manu¬ 
facturer would not be in business at all. A Patent that gives to an 
individual or corporation the exclusive right to manufacture a certain 
article, is valuable, however, only because it confers a monopoly. It 
is this monopoly, rather than the invention itself, that is capitalized. 

8 “Accounting—Practice and Procedure,” by Arthur Lowes Dickin¬ 
son, (page 127). 



80 


The New Capitalism 


Once Upon a Time 

There was a time in the history of business when “good 
will” really signified something and could justly be con¬ 
sidered as an asset in the transfer or sale of an established 
business. For, when a man, in competition with many 
others, had built up a reputation for square dealing, trust¬ 
worthiness, superior quality of goods, service, etc., it was 
only fair that the successor reaping the benefit of another’s 
reputation, work, intelligence, character or what not, should 
pay a reasonable amount for the advantages accruing to 
the business which he took over. But in those days “good 
will” was never computed at an excessive figure over and 
above the true value of the tangible assets. If I am per¬ 
mitted a guess based on a dozen or so cases that came within 
my personal observation, I should say that the amount paid 
for the ‘ ‘ good will ” of an established business, ranged from 
ten to twenty-five percent of the purchase price paid for 
the property itself. Moreover, while the amount paid for 
“good will” was naturally charged up to investment, it 
did not have a tendency to materially increase prices, for 
in those days competition was keen, and it was necessary 
for a manufacturer or merchant to stay within the limits 
observed by his competitors. 

Briefly, in those days, “good will” did not appear on 
the books as an asset on which a dividend had to be earned 
or paid. In fact the continued and growing patronage of 
the public constituted the “good will”; nor were the cus¬ 
tomers penalized for their continued patronage by being 
made to pay a bigger price for the goods they purchased. 

It’s Different Noiv 

But since the birth of the Capitalistic System “good 
will” has ceased to have any meaning. Not only is it con¬ 
sidered as an asset on which a dividend is to be earned or 
paid; in most cases it is the principle asset, and is often 
capitalized for more than the plants of a corporation. One 
of the big merchandising firms in the United States has 


81 


The Principle of Inflation 

placed a value of twenty-seven million on its plants; and 
a value of thirty million on “good will.” Its total capital¬ 
ization is $115,000,000. 

The Decline in “Good Will” 

Incidentally let me add that during the past few years 
the business of the firm I have in mind has decreased from 
twenty-five to thirty-five percent. Consequently, if logic 
is to prevail, it can be said that the “good will” of this 
particular firm has declined from one-fourth to one-third. 
Therefore, the capitalization of the “good will” should be 
reduced proportionately. But there has been no reduction 
in the capitalization; the shrinkage has been in the value, 
or market price, of the securities. The bona fide investor, 
as usual, must bear the brunt of the depreciation; he alone 
suffers a loss of dividends and in the value of the securities 
he purchased. 

“Good will,” as Capitalistically employed, is, more prop¬ 
erly speaking, “bad will.” At any rate when the inflated 
securities issued against it are offered daily, and bought 
and sold on the market as if “good will” were a commodity 
whose value fluctuates, quoted, perhaps, at 100 on the first 
of the month and worth only fifty cents on the dollar a few 
weeks later; paying dividends one year, and none the next 
—“good will” is not markedly in evidence. 

In plain language, “earning power” and “good will” 
are nothing more than Capitalistic devices invented to con¬ 
ceal the cardinal crime of OVERCAPITALIZATION. 

Just Inflation 

When we speak of Overcapitalization or Inflation , the 
mind, somehow, harps on the inflated valuation of corpo¬ 
rations. Yet that is only half the story. Inflation is the 
order of the day, and it is universally practiced. Inflation 
to the right of us; inflation to the left of us; inflation in 
front of us; inflation all around us;—inflation everywhere, 
based on false valuations arbitrarily raised to the uttermost 
limit. 


82 


The New Capitalism 


I want to make this perfectly clear, and I ask the reader 
to keep it in mind—viz., that when I speak of Overcapital¬ 
ization or Inflation I do not mean only the overcapitalized 
corporations, and which issue stocks and bonds against a 
greatly inflated valuation; 1 also include inflated values of 
properties that are not incorporated, such as real estate, 
land, etc. In many cases the inflation predicable of such 
properties is even greater than the inflation of corporate 
properties. 

I will not take a narrow view of, nor a niggardly stand 
on value. I can subscribe to a healthy, fair and reasonable 
increase in the value (price) of property, especially if the 
increase is computed on an absolutely fair and reasonable 
basis. I have nothing to say against a gradual and natural 
increase, but I protest against sudden and tremendous 
increases—in brief against artificial, excessive and arbi¬ 
trary inflation. 

This * ‘ inflation 77 of valuation is now general, particularly 
with regard to the valuation of real estate in the big cities. 
It has given us excessively high rents. See for yourself 
how it works: If I occupy a house whose value, inclusive 
of the land, is $5000, and the landlord computes rental at, 
let us say, ten percent on the actual value or the fairly 
computed amount invested, I will have fairly reasonable 
rent. But if the landlord raises the “value” of the prop¬ 
erty which I occupy to $10,000, it is easy to see that he will 
demand an excessive rent in order to earn ten percent on 
the inflated valuation. 

But it is not only residential property whose “value 77 
has been raised to the topmost limit. Business property 
of all kinds, factories, offices and stores have been included 
in the general scheme of inflation, with the result that the 
occupants pay the higher rentals and pass them along to 
the public. And the same process of “passing it along 77 
applies to every line of business or form of property of 
which inflation can be predicated. And the non-investor 
is “the goat. 77 


CHAPTER IX 


The Volume of Inflation 

T HE overcapitalization of the corporate enterprises in 
the United States is simply fabulous. Under cor¬ 
porate enterprises might be included every kind of 
corporate property—railroads, transportation systems, pub¬ 
lic utilities, manufacturing industries, mining and sundry 
other enterprises. But the paucity of statistics pertaining 
to these different property classifications makes computa¬ 
tion of their actual value and their fictitious valuations 
difficult, almost impossible. Besides it is not necessary for 
the immediate purposes of this book. I shall, therefore, 
confine myself in this chapter to the one kind of corporate 
properties for which fragmentary, rather than approximate 
data are available—viz., the manufacturing industries. 

If I were put to the necessity of making an estimate— 
not a wild guess, but an estimate based upon careful com¬ 
putations—I should say that the overcapitalization of the 
manufacturing industries in the United States is four times 
greater than the actual value of the properties. This has 
been shown by actual figures, as regards the United States 
Steel Corporation, by which, in round numbers, $500 of se¬ 
curities were issued for every $100 of actual value of phys¬ 
ical assets. Making due allowance for the passing of twenty 
years of time, and taking everything into consideration, 
and also, above all, because I want to be conservative and 
fair to those concerned, I will say that the overcapitaliza¬ 
tion of the manufacturing industries today is approximately 
twice the amount of the actual value of the properties capi¬ 
talized. That is to say, for every dollar of actual value— 


83 


84 


The New Capitalism 


value fairly and liberally computed—of the productive in¬ 
dustrial properties in the United States, two dollars of 
inflation have been added. 

“Where Ignorance is Bliss—’Tivere Folly 

to he Wise” 

If we had complete data for all industrial properties, if 
we had the complete figures for all the industrial corpora¬ 
tions in the United States, if we had the totals pertaining to 
the capitalization of these properties and the amount of 
securities, common and preferred stock outstanding, and 
bonds and notes issued, we could at least approximate the 
total amount of inflation. But unfortunately, and for 
reasons that we need not inquire into at this time, this 
important information has never been put into concrete 
shape for the convenience and edification of the general 
public. In such works as Poor’s and Moody’s Manuals 
we find a wealth of information, composed of thousands of 
pages, with regard to the securities, industrial and others, 
but no tabulated statistics covering these points. Other 
statistical experts seem to be equally reticent. The United 
States Government, in all its hundreds of volumes of sta¬ 
tistics and data pertaining to hundreds of more or less 
interesting subjects, has never attempted to publish any 
statistics that would throw a definite light on this particu¬ 
lar subject. Perhaps it is well for the peace of mind of 
the public at large that the statistics pertaining to the 
amount of overcapitalization, that is, of securities, sans 
value, be not published. 

“When Doctors Disagree, Disciples Then 

Are Free” 

In the absence, therefore, of any worth-while tabulations, 
we are put to the necessity of approximating the situation 
from a correlation, or piecing together, of fragmentary 
(and sometimes contradictory) figures having bearing on 
the points involved. 

According to the 1920 Bureau of Census Statistics, the 



The Volume of Inflation 


85 


capital of 275,793 manufacturing establishments in 1914, 
aggregated $22,790,980,000. In its latest Summary of Mam 
ufactures, published October 4,1921, the United States Cen¬ 
sus Bureau gives the capitalization of 289,768 manufactur¬ 
ing establishments as $44,678,911,000—an increase of 
twenty-two billion in six years; which would be at the 
rate of about three and one-half billion a year. 

It is to be remembered that ordinarily capitalization re¬ 
fers to stock; it does not take into account the bonds and 
notes issued by corporations. If the figures for bond and 
note issues could be obtained and added to the stock issues, 
the total securities issued by the industrial corporations 
would yield a staggering figure. 

Unfortunately there are no detailed statistics. Wherever 
we encounter them they are incomplete, and unsatisfactory, 
or camouflaged, or so twisted and turned as to be almost 
irrelevant. For example: The Statistical Abstract of the 
United States Census (1920) gives the Journal of Com¬ 
merce and Commercial Bulletin of New York as the source 
of the following statistics pertaining to “the capital in¬ 
vested in new enterprises whose authorized capital equalled 
or exceeded $100,000/’ 


1917 . 4,607,894,100 

1918 . 2,599,753,600 

1919 . 12.677.229,600 

1920 . 13,998,944,2001 


Total. 33,883,821,500 2 


One may ask: precisely what is meant by “capital 
invested in new enterprises ’ ’ ? What about the new capital 
invested from 1917 to 1920 in old enterprises? And does 
the “capital invested” include notes and bonds as well as 
stock issues, or only the latter? 

1 Since January, 1921, following- the decision of the United States 
Supreme Court that stock dividends are non-taxable, there has been a 
veritable orgy of inflation of capitalization. Billions of undistributed 
surplus profits that had been allowed to accumulate pending the decision 
of the Supreme Court, were transmuted into securities. In some in¬ 
stances a four hundred percent stock issue was distributed. 

2 According to the Summary of Manufactures for 1919, published by 
the United States Department of Commerce, the capital of 290,111 
establishments was $44,776,000,000. 









86 


The New Capitalism 


“Confusion Worse Confounded” 

At any rate, according to these statistics, a total of nearly 
thirty-four billion dollars was added to the various enter¬ 
prises during four years. Yet we were told that in 1914 
the capitalization of the manufacturing establishments 
amounted to nearly twenty-three billion dollars. Adding 
to this nearly twenty-three billion the nearly thirty-four 
billion of “capital invested” from 1917 to 1920, the total 
would be fifty-seven billion. Yet we were told as late as 
October, 1921, that the capitalization of the manufacturing 
establishments was approximately forty-five billion—a dif¬ 
ference of twelve billion. (And be it remembered we have 
not even touched upon the item “capital invested” from 
1914 to 1917.) 

All of which emphasizes the untrustworthy character of 
the statistics upon which many financial writers base their 
solemn dicta and cocksure asseverations. 

Let me give you one more example of the utter unrelia¬ 
bility of securities statistics. Please note that according 
to the United States Census Statistics (see statistics, page 
85) “the capital invested in new enterprises” in 1920 was 
$13,998,944,200. Then compare that with the following 
from the New International Year Book for 1920: 

“Issues of new domestic corporate securities in 1920 
aggregate $3,107,000,000, of which $1,157,000,000 were 
stocks. Total issues exceeded those of 1919 by $86,000,000. 
Of the total, $416,000,000 were offered by railroads, and 
$2,691,000,000 by industrial concerns. The amount of new 
long term municipal bonds issued was $653,000,000, while 
loans of foreign companies and corporations placed here 
aggregate $345,000,000. It would thus appear that the 
grand total of security issues in this country in the year 
1920, exceeded $4,000,000,00.” 

Ten Billion Dollars of Securities a Year 

What do you make of it? Isn’t it confusing? But let 
us proceed; perhaps light will break through a rift in the 
clouds. 


The Volume of Inflation 


87 


The Wall Street Journal, which ought to know whereof 
it speaks, early in 1921, in an endeavor to explain the great 
decline in stocks and sundry securities, gives a list of ten 
reasons for the decided downward movement, among which 
we find these three: 

‘ ‘ Flotation of companies at inflated valuations, par¬ 
ticularly petroleum companies without established merit. 

“Too many securities for the public properly to digest. 
As an example, over four hundred issues were recently 
traded in on the New York Stock Exchange in a single 
five-hour session. Close to one-third of the issues were 
stocks listed over the last year or two. In three years there 
has been an increase in total of public and private bonds 
and stocks listed on the New York Stock Exchange of 
something like $30,000,000,000, or at the rate of $300 per 
capita. Add new stocks not listed, and the total will reach 
a much larger figure. 

“Billions in new financing, including flotation of hun¬ 
dreds of millions of dollars of foreign securities in this 
market. ’ ’ 

From this confusion of conflicting statistics I return to 
my original statement made in the beginning of this chap¬ 
ter, viz., that for every dollar of actual value of the pro¬ 
ductive industrial properties in the United States, two 
dollars of inflation have been added. 

The Public Pays the Interest 

If we accept the statistics of the United States Census 
Bureau, published October 4, 1921, according to which the 
capitalization of 289,768 manufacturing establishments is 
$44,678,911,000—forty-five billion in round numbers—then 
the actual value of the plants would be fifteen billion dol¬ 
lars, and thirty billion would be sheer inflation. But the 
public is paying interest on this thirty billion of inflated 
capitalization. Computing the interest at six percent the 
public is being mulcted of $1,800,000,000 a year on this one 
item alone. In addition to capital stock there are bond and 
note issues against the inflated valuation of the industrial 


88 


The New Capitalism 


properties, on which the public is also paying interest. 
And mark you well! this is predicated only of manufactur¬ 
ing establishments; it does not include railroads, public 
utilities, mines, etc., for which I shall make no estimate for 
the present. You may make your own computations if you 
care to pursue the subject further. 

A “ Saltus Lyrims” 

Now for an abrupt transition. Two lessons at least, we 
learn from this chapter, and they stand out clear and 
strong from the maze of stupendous figures and conflicting 
statements. They are: 

1: That the aggregate corporate securities issues are simply 
tremendous. 

2: That the securities issues are out of all proportion to the 
actual value of the properties against which they are 
issued. 

Writing at a time (1883) when pools, syndicates and 
mergers were in their experimental stages, and consolida¬ 
tions, monopolies and Trusts in their infancy; when stock 
and bond issues were not so recklessly floated as at present, 
Henry Demarest Llovd 3 said that “Securities have become 
as staple an article of production with us, as wheat, cotton, 
oil or hogs. One million dollars worth a day of stocks and 
bonds is needed in prosperous years to supply the demands 
of the New York Stock Exchange. . . .” 

Thirty-eight years ago, according to Henry Demarest 
Lloyd, one million dollars worth a day of stocks and bonds 
was needed “to supply the demands of the New York Stock 
Exchange. ’ ? Mr. Lloyd w^as simply horrified; and yet one 
million dollars a day was only about a third of a billion 
of securities issues a year. 

How does that compare with the securities issued today ? 
Basing my estimate on the sundry statistics and statements 
quoted in this chapter, I think it is exceedingly conserva¬ 
tive to say that during the last three years corporate secur- 


s “Making; Bread Dear,” North American Review, August, 1883. 



The Volume of Inflation 


89 


ities of all kinds (stocks, bonds, notes) were issued at the 
rate of five billion dollars a year; or about 416 million a 
month; or about 16 million a day; which is approximately 
two million dollars of securities every hour of every 
working day in the year. 

What pikers they must have been in the times of which 
William Demarest Lloyd wrote! For every dollar of secur¬ 
ities issued in 1883 we are today issuing sixteen dol¬ 
lars of securities; for every million they issued thirty-eight 
years ago, we are issuing sixteen million! 

“He Babbled o’ Green Fields”—Shakespeare 

Even now I hear a babble of voices, all clamoring to be 
heard in defense and justification of the tremendously 
greater securities issues of today. “We have grown tre¬ 
mendously in population, in size, in wealth, etc.,” they are 
saying in chorus. 

Aye, we have! That I will not even attempt to deny! 
But, hear me now: The volume of bona fide business was 
not sixteen times greater than in 1883; the popula¬ 
tion was not sixteen times greater; the production 
was not sixteen times greater, and consumption was 
not sixteen times greater; exports were not sixteen 
times greater, and certainly the increase in the physical 
assets, or in the legitimate value of the properties was not 
sixteen times greater; then why should the volume of 
corporate stocks and bond issues be sixteen times greater? 
Perhaps some economic Solomon will arise among us to 
explain; perhaps some statistical wizard will enlighten us 
on this important point, or some camouflage expert will set 
us right. 4 

4 Those who are disposed to contend that I have exaggerated the 
volume of securities issued, or that the statistics on which I base my 
estimate are open to criticism, or need qualification, are at liberty to 
substitute the correct figures (if they have them) for those I have 
given. Indeed I shall not mind if they cut down my claim by fully 
one-half. In that case we would be issuing about eight dollars of se¬ 
curities for every dollar issued in 1883. In that case, too, I would 
maintain that population, production, consumption, etc., is not eight 
times greater than in 1883. 




90 


The New Capitalism 


“How Long, 0 Lord, How Long— 99 

How long is this debauch of issuing “ securities ’’ at the 
rate of say from four to five billion a year going to 
continue? Where is it going to stop? When will the 
bubble burst? Even though the tremendous increase were 
justified by growth in the volume of business, population, 
production, consumption, exports, etc.,—this I contend, 
that the end of possibilities is in sight. Certainly the enor¬ 
mous increase observable from 1883 to 1920 cannot be 
duplicated during the next thirty-eight years; nor can the 
same percentage of increase be maintained for any length 
of time. 


Maturing Securities 

But I hear a murmur among the defenders of the 
Capitalistic System, growing louder and louder, finally 
bursting into an angry shout of accusation against me for 
having overlooked a most important point, viz., that there 
are maturing securities which must be taken into account. 

That is a very good point, and cognizance must be taken 
of it in any book or article pretending to discuss the sub¬ 
ject of securities issues. Indeed so important is this point 
that I prefer to let an authority speak for me. 

The 1920-21 edition of “Poor’s Handbook of Investors’ 
Holdings,” prepared entirely from the latest published 
official data, and including the holdings of about three 
hundred and eighty companies additional to those appear¬ 
ing in last year’s issue, devoted seventy-five pages (six 
point type, double column) to a list of securities maturing 
from January 1, 1921, to December 31, 1923. “This com¬ 
pilation, ’ ’ we are told in the preface, ‘ ‘ covers all the secur¬ 
ities in which there is known public interest, embracing 
bonds, notes, etc., of Steam Railroads, Street Railways, 
Public Utilities and Industrial, Mining and Miscellaneous 
Corporations.” 

These maturing securities aggregate $2,664,337,634, which 
is less than ten percent of the new securities issued during 


The Volume of Inflation 


91 


the past three years. In other words, for every dollar of 
maturing securities nine dollars of new securities are 
issued; for every million of maturing securities, nine million 
new securities are issued. Or, to express it more in con¬ 
formity with the basis of calculation adopted in this chap¬ 
ter: Securities are maturing at the rate of about 880 
million dollars a year; or about 74 million a month; or 
about $2,500,000 a day. 

“Maturing Securities” that Perpetuate 

the Debt 

But that is not the end of our story. The practice of 
issuing new stocks and bonds and selling them in order to 
pay olf the maturing securities, is growing alarmingly. As a 
matter of fact, many of the maturing securities are not 
retired, they are merely refunded; and thus the liability or 
debt is perpetuated. This is called high corporate finance 
—a fine scheme for the holders of the maturing securities, 
and bankers and brokers, but it does not lighten the burden 
for the non-investors, who will continue to be taxed in 
order to pay the interest on the new T securities issued 
against the old debt. A solitary example will illustrate 
the point. 

In a press clipping, dated Washington, May 21, 1921, 
we read of a new bond issue jointly made by the Northern 
Pacific Railway Company and the Great Northern Railway 
Company: 

“These corporations have bonds now due that amount 
to $215,227,000, bearing 4 y 2 percent. To renew this 
indebtedness they have been authorized by the interstate 
commerce commission to issue $230,000,000 at 6y 2 percent 
interest. The higher interest is justified by the railroads 
on the ground that ‘many brokers whom they have con¬ 
sulted ’ have advised them that this ,is necessary. 

“The new bonds are nearly $15,000,000 in excess of the 
amount of the indebtedness. The difference goes to bankers, 
brokers and investment dealers, who will receive a com¬ 
mission for every $100 sold. The market value of the 


92 The New Capitalism 

bonds—what the public pays—is $96.50 for every $100 
bond. 

‘ ‘ This bond issue means that the people are saddled with 
an additional tax of $15,000,000, at 6% percent interest, 
and because the interest rate on $230,000,000 bonds is 
increased from 4% percent to 6% percent, the public must 
also pay this increased wage for the dollar.” 

Hundreds of similar cases could be cited, all empha¬ 
sizing that in order to pay maturing bonds, corporations 
simply issue new bonds. In good business practice the 
bonded debts of a concern or corporation should be liqui¬ 
dated out of the earnings; that is to say, should be paid off 
out of a sinking fund. A business that cannot pay off 
its bonded indebtedness in the course of fifteen or twenty 
years, out of its sinking fund, is being mismanaged and 
deserves to be put through bankruptcy proceedings. The 
management of a concern or corporation that cannot con¬ 
duct its business so as to clear it of its burdening incum¬ 
brances is incompetent, and ought to be removed by the 
stock and bond holders. The practice, at present, almost 
universally employed, of meeting maturing debts by new 
bond issues, is immoral and reprehensible, besides offering 
all kinds of opportunities for inside jobbing, a phase of 
the subject which I shall not discuss at this time. 

Let it be understood that I am not against the bonding 
of properties; in fact I accept it as a business necessity. 
But what I do object to is the manner in which maturing 
bonds are paid—or rather perpetuated—viz., by the sale 
of other stocks or bonds; and most strenuously do I object 
to this method, because making a debt upon a property 
perpetual and even increasing it, and the interest charges 
thereon, means compelling the public to pay perpetual 
interest upon the original and the increased debt. 

Where the Non-Investor Gomes In 

There we have the nexus of this w T hole subject. The non¬ 
investor must pay it all. Here you have the principle 
clearly stated. It is the chief explanation of the High Cost 


The Volume of Inflation 


93 


of Living that is afflicting the nation. Whether 20, or 50, 
or 100 billions of inflation has been added to the actual 
value of the properties in the United States, it is a burden 
of ponderous proportions placed upon the backs of the 
sixteen million families—a gigantic debt against every man, 
woman and child—the interest on which must be paid by 
the non-investor public; and it is collected through the 
instrumentality of higher prices. The greater the debt the 
greater the interest charge; the greater the interest charge 
the higher the prices; the higher the prices the higher the 
Cost of Living. That is clear! 

Not only is this debt perpetual, it is cumulative; it in¬ 
creases year after year. Whatever the exact amount of 
the inflation may be at this hour—whether 20, or 50, or 
100 billion—or more or less—unless radical changes are 
made in the present corporation finance methods—it is 
likely that at the end of another eighteen or twenty years 
the debt charged up against the non-investors will have 
doubled itself. Let me explain what I mean, by giving 
you a concrete illustration. Let us assume that instead of 
cash, J. Pierpont Morgan received 62% million dollars of 
stock for organizing the United States Steel Corporation. 
That was the reward for his genius. He didn’t put in a 
single dollar, but the stock he received increased his wealth 
62% million dollars. Now, figuring the interest he was to 
receive at only five percent, Mr. Morgan drew from the 
corporation $3,125,000 a year. Within twenty years he (or 
his heirs) will have drawn out from that one corporation 
alone, 62% million dollars, or the full amount of the face 
value of the stock given him. Then the same process begins 
over again; that is to say, every twenty years he (or his 
heirs) will have drawn out 62% million dollars. Within 
a hundred years his heirs or their descendants, will have 
drawn out of that one corporation alone, $312,500,000. 

The Era of Super-Overcapitalization 

The pioneer period of arbitrary overcapitalization of 
industries has successfully demonstrated the possibilities of 


94 


Tlie New Capitalism 


a System of exploitation. In the beginning overcapitali¬ 
zation was computed on the basis of a six percent “earning 
power” on the amount of capital actually invested. But 
now the era of swper-overcapitalization has begun. Hence¬ 
forth the stock and bond issues will be based on the 
“earning power” of the inflated valuation. Through the 
simple device known as declaring “stock dividends” the 
overcapitalization will increase automatically, thus making 
the debt perpetual and yielding cumulative interest. This 
means placing a crushing weight upon the non-investors. 

Can they continue to carry the load? My answer is, 
they cannot! And I will add that once they understand 
what has been and is being done to them, they will not only, 
through their combined strength, throw off the burden, 
but abolish or even destroy the Capitalistic-Mammonistic 
S3^stem that aims to crush them. 


CHAPTER X 

The Capital Crime of Oyercapitalizatiox 

I T IS one thing to say that overcapitalization is the evil 
tree that has produced, if not all, at least most, of our 
economic troubles, and quite another thing to prove it. 
It will not do merely to make assertions; I must be able to 
give definite and demonstrable reasons for the opinions I 
hold. For years I have held that overcapitalization is fun¬ 
damentally wrong; that although sanctioned by law it is 
wicked and indefensible; economically it cannot be con¬ 
doned; from a business standpoint it must be condemned 
as a “delusion and a snare” and altogether unsound. I 
shall not categorically animadvert on these points in this 
chapter, but my collective contention will be made clear 
when this work is taken in its entirety. 

More recently I have maintained that overcapitalization 
is the fundamental cause for the High Cost of Living, and 
entirely to blame for the decrease in the purchasing power 
of money. I furthermore maintain that the system of 
overcapitalization is responsible for the system of inade¬ 
quate wages, and the determination of Capitalistic employ¬ 
ers to keep the wages of the mass of workers even below a 
mere living basis. All these, and many other things, I 
shall try, in the course of this book, to prove to anyone 
amenable to reason and disposed to be fair; to anyone 
whose mind is not saturated with Capitalistic toxins and 
whose pockets are not bulging with ill-gotten gains—thanks 
to the ingenious Capitalistic System. 

The Party of the First Part 

For the sake of brevity and greater lucidity let us con¬ 
sider the effect of overcapitalization upon the two parties 


95 


96 


The New Capitalism 

concerned—the chief beneficiaries of the Capitalistic Sys¬ 
tem—the Capitalistic group; and the non-beneficiaries—the 
non-investors—the public. The beneficiaries we will call 
the Party of the First Part. 

Great and calculable benefits have accrued to the Capital¬ 
istic Entrepreneurs through the creation of ouercapital. 
Let me briefly summarize the immense benefits and mani¬ 
fold advantages that redounded to the Capitalistic Entre¬ 
preneur group: 

1: Overcapitalization at least trebled (in many cases in 
the beginning quadrupled and quintupled) the wealth of 
the constituent members of the Capitalistic System. 

2: Overcapitalization at least trebled the profits of the 
beneficiaries of the System. 

3: Overcapitalization at least trebled the credit, i.e., the 
borrowing power, of all the persons concerned. 

4: Overcapitalization conferred upon every member in 
the Capitalistic group a greatly increased capacity for 
speculating in stocks and bonds. 

These, in brief, are the cardinal benefits from which 
innumerable minor advantages have flowed, all emptying 
into the coffers of those chiefly concerned. 

Long before overcapitalization of the industrial corpora¬ 
tions became general the control of capital and credit was 
centered in a small group. Overcapitalization increased 
the hold and power of this small group, which automatically 
became the nucleus—the heart—of the greater Capitalistic 
System. It was overcapitalization that brought into the 
charmed circle of the Capitalistic Entrepreneurs, hundreds 
—and their number in time grew into thousands—of new 
men, all of whom can directly trace their rise to greater 
wealth and power to the date of the inclusion of their 
“recapitalized” corporations into the System. 

The Master Mind 

J. Pierpont Morgan was able to organize the United 
States Steel Corporation primarily because he was the head 
of the banking house of J. P. Morgan & Co. In the finan- 



The Capital Crime of Overcapitalization 97 

cial oligarchy he was the recognized dictator; his will was 
law, his mere nod a command, his power greater than that 
of a Czar. But even a financial potentate requires some¬ 
thing more than autocratic power, and this something more, 
if I have read the records correctly, J. Pierpont Morgan 
possessed to an uncanny degree. No doubt others before 
him had vaguely sensed the possibilities of mergers, com¬ 
bines and consolidations, but they lacked his resourceful¬ 
ness, and so their visions never fructified. Although navi¬ 
gators before Columbus may have dreamed of an El Dorado , 
only Columbus translated his dream into a voyage beyond 
the charted seas. 

With all his dictatorial power Morgan could not have 
successfully organized the United States Steel Corporation 
had his genius not prompted him to perfect the machinery 
that enabled him to carry out his plans. The particular 
machinery which carried the United States Steel Corpora¬ 
tion, as well as every other ‘ ‘ reorganized ’ ’ corporation since, 
over the rocks of disaster to the haven of-security, is over- 
capitalization. It wasn’t the amount of money in Mr. 
Morgan’s and the allied banks, and which the dictator could 
have commandeered had he deemed it necessary, that made 
the United States Steel Corporation a success; nor yet the 
credit he might have commanded in an emergency. It was 
the amount of money that wasn’t in Mr. Morgan’s, or 
allied, banks; it was the amount of money that didn’t exist 
—that had neither been minted, nor printed, and for which 
there was no gold or silver bullion in the United States 
Treasury vaults, nor any place on earth; it was the amount 
of wealth that existed only in the Morgan mind, and which 
the master conjurer made his audience believe actually 
existed; it was the amount of capital that his legerdemain 
persuaded the world into imagining into existence that is 
responsible for the financial success of the United States 
Steel Corporation, as well as every other so-called success¬ 
ful corporation organized since, according to the plans and 
specifications laid down by Morgan, the conjuror. 

Mr. Morgan’s remarkable feat of organizing the most 


98 


The New Capitalism 

gigantic corporation in the world, stamps him less a wizard 
of financiering than as a bold necromancer, and master of 
the black art of Inflation. The magician on the stage 
shows his audience an empty silk hat, over which he waves 
his wand; and lo, extracts from it a white rabbit. Mr. 
Morgan drew from his empty hat not only a single white, 
unresisting rabbit—but hundreds of millions of wealth and 
capital. No magician ever succeeded in deceiving his audi¬ 
ence as he succeeded in deluding the people into believing 
that there was wealth where there was no wealth; capital 
w T here there was no capital; value where there was no 
value; property where there were no assets; and property 
rights where there was neither capital, wealth, assets nor 
value. That his wonderful performance won the admira¬ 
tion, applause and approval of the men who found them¬ 
selves made rich over night, goes without saying. That 
thousands of imitators, lacking his originality and genius, 
quickly learned the trick and have since duplicated his 
performance with a fair degree of success to themselves and 
others, is a matter of common knowledge. It cannot be 
denied that the creation of fictitious wealth by a stroke of 
the pen makes a powerful appeal to the imagination, par¬ 
ticularly since the wealth thus created can be converted 
into counterfeit capital and be made the basis for credit 
out of which further capital accumulations quickly result. 

Papier Mache Millionaires 

It is a matter of history that when the United States 
Steel Corporation was organized, scores of men became 
millionaires over night. The automatic increase in the 
wealth of the individuals immediately concerned is the note¬ 
worthy thing about this whole business of overcapitaliza¬ 
tion. The man in a given concern, and whose holdings 
therein are worthy fairly valued, let us say, $500,000, 
twenty-four hours later considers himself, and is rated, 
worth a million or two. His wealth is increased—doubled 
or trebled—by a mere resolution of a Board of Directors; 
his fortune augmented by a stroke of the pen. 


The Capital Crime of Overcapitalization 99 

The inherent immorality of arbitrarily inflating the 
wealth of individuals, or families, from the million dollars, 
fairly computed, to say three million dollars; or from ten 
million to thirty million; or from thirty million to ninety 
million; or from one hundred million to three hundred 
million; and so on without limit and without rhyme or 
reason, must be apparent to all whose sense of decency 
is still able to function. 

Thousands of men today consider themselves worth a 
certain amount, which, when reduced to actual facts and 
figures, would be considerably less. Their wealth is largely 
fictitious; it has no assets behind it—nothing more substan¬ 
tial than a mythical ‘ 1 earning power ’ ’—w T hich does not and 
cannot reside in the fictitious wealth itself, but is derived 
wholly from the paying power of the Party of the Second 
Part—the public. Thousands of so-called millionaires only 
imagine that they are millionaires. I would not venture 
to ruthlessly destroy the delusions of these papier mache 
millionaires were it not for the fact that they are hugging 
their delusions to their souls at my expense—at the expense 
of all non-investors—the public. The non-investors are 
penalized through the medium of higher prices for life's 
commodities. The millions of inflation taken in the aggre¬ 
gate now run far into the billions. It is on this enormous 
increase of non-existing wealth that the public must pay 
interest and dividends, as we shall see in the course of 
this book. 


An Objection Answered 

“What difference does it make,” said a friend of mine 
who knows my views but who has strong leanings toward 
the present Capitalistic System and would defend it 
against all attacks, “what difference does it make whether 
a corporation earning, say $240,000 considers this amount 
as twenty-four percent on a million dollars invested, or six 
percent on four million invested? In other words, what 
difference does it make whether the capitalization in the 


100 


The New Capitalism 


case given is one million or four million? I cannot see 
that it makes any difference at all.” 

My friend is only one of thousands who take this view— 
they cannot see any difference! “None so blind as he who 
does not want to see! ” May I not ask the valiant defenders 
of the present Capitalistic System, and apologists for all its 
practices: “If it makes no difference, why do it?” Evi¬ 
dently, in the minds of those most concerned, there is a 
difference—and the difference is strongly in their favor, 
or they would not do it. In the case given the amount of 
earnings would be the same, viz., $240,000; but the trial 
balance sheet would read differently. Without the camou¬ 
flage of overcapitalization the claim that capital earns only 
six percent is exposed as an outrageous lie. The Capital¬ 
istic device of a mythical six percent ‘ ‘ earning power ” is a 
lie! Capital, under the aegis of overcapitalization, earns 
many times more than six percent on every dollar actually 
invested, as I shall hope to establish in the course of this 
book. What I am trying to establish at the present moment 
is that it does make a difference whether a corporation 
earning $240,000 is capitalized for a million or for four 
million. Let me ask: “What is the amount actually 
investedf” “One million,” says my friend. Then why 
pretend, that four million are invested? It is simply an¬ 
other gross lie. And these lies we find everywhere; it is 
upon lies that the Capitalistic System is budded; lies are 
its sustaining props. 

When a corporation overcapitalizes two, three or four 
times, in excess of its actual value, it is but compelling the 
public to pay interest on wealth that doesn’t exist, and 
dividends on capital that does not exist. That is an eco¬ 
nomic injustice, not to be tolerated much longer. 

But I do not want to wander from my point. Over- 
capitalization does make a difference. It increases the 
wealth of the individuals immediately concerned in that 
they are given securities of a mythical ‘ ‘ value ’ ’ three times 
as great as the actual value of the assets. 



The Capital Crime of Overcapitalization 101 

Fictitious Borroiving and Trading Power 

But that isn’t all. The issuance, sale, or conveyance of 
securities largely in excess of the existing assets, auto¬ 
matically increases the credit facilities or borrowing power 
of the persons concerned. All of which is fine for the per¬ 
sons immediately concerned, the borrower; and a splendid 
source of profit for the banks, wdiich, as is pretty generally 
known, are under the dominance of the chief Capitalistic 
Entrepreneurs. For, the inflated securities are collateral, 
and are accepted as such without question by the creators 
of fictitious values. The borrowings are ‘ ‘ reinvested ’ ’ in 
other inflated securities. Beyond a doubt considerably 
greater sums of money can be made by the favored few 
than would be possible under a system not based on over- 
capitalization. 

Another great advantage to the immediate beneficiaries 
of the Capitalistic System lies in their ability to trade in 
and juggle their securities on the Stock Exchange, from 
which transactions probably as great, if not greater, profits 
are derived in the course of a year, than from their busi¬ 
ness enterprises. 

It must be clear that an increase in interest-bearing 
wealth and dividend-paying capital; an increase in col¬ 
lateral, which creates a greatly augmented borrowing 
power; which in turn confers the power to use a larger 
amount of capital to ‘ ‘ invest ’ ’ in other securities, thus multi¬ 
plying profits; besides the opportunity of repeatedly selling 
and buying their own securities, generally at a profit, con¬ 
stitute a combination of advantages that are of incalculable 
benefit to any component member of the Capitalistic group. 
Does overcapitalization make any difference? It does! A 
most decided difference! Even under the old Capitalistic 
System of non-inflation—the era antedating the organiza¬ 
tion of the United States Steel Corporation—numerous 
benefits accrued to the proprietors, but at least they were 
content with returns on actual investments—not imaginary 
investments; interest on actual wealth, not fictitious wealth. 


102 


The New Capitalism 


The possibility of accumulating wealth more or less real, 
and certainly far in excess of any substantial wealth it 
would be possible to accumulate sans the device of over- 
capitalization; and the ability to command credit which 
can be converted into profit earning capital, has, naturally 
enough, recommended the trick of overcapitalization—it is 
nothing more than a trick, and a scurvy trick at that—to 
all hungering after greater wealth and not particularly 
scrupulous as to how it is acquired. 

No Property Rights Where There Is No 

Property 

During the past twenty years I have read a number of 
ponderous books dealing with Property and its Rights— 
books in w r hich the authors with a great show of learning 
and many elaborate legal definitions ably defended their 
thesis. On the general thesis I am in accord with these 
writers. It is not to dispute or controvert aught that has 
been written on these subjects that I propose the question: 
Can there be Rights where there is no Property; or can the 
rights in a certain piece of property be greater than the 
actual fairly computed value of that piece of property? 

To discuss this subject even half way would require 
many chapters. I shall make no attempt to discuss it. 
However, I will briefly state the principle involved. The 
acquisition and possession of property is a sacred indi¬ 
vidual right. All laws are based on the principle that the 
rights of property are paramount; and their interpretation 
by courts proclaims the rights implied by possession in¬ 
violable and impregnable. I accept this status. I have 
the utmost respect for property, and shall always defend 
its rights. But I maintain that there are certain limitations 
with regard to property and its rights—which no man, nor 
group of men, has the right to transcend. Property own¬ 
ership may be absolute; but property rights are only 
relative. A property owner cannot do with his property 
as and what he chooses; there is a limit beyond which he 
cannot go, nor be permitted to go. A gun is a piece of 


The Capital Crime of Overcapitalization 103 

property, the owner of the gun a property owner; but the 
owmer of the gun cannot, even if it pleases him, or is to 
his advantage, shoot his neighbor with his undoubted prop¬ 
erty—his gun—with impunity. 

A man who owns a twenty dollar gold piece, minted by 
the United States Government, is the absolute owner of it; 
it is his property. All the legislatures cannot deprive him 
of his property; the courts must recognize and protect his 
rights in it. But if the owner of that twenty dollar gold 
piece were to melt it in a pot that belongs to him, and mix 
it with cheaper metals, all of which belong to him; and 
with tools belonging to him, converts the twenty dollar 
United States gold piece into five twenty dollar counterfeit 
coins, he would be punished, in spite of the fact that the 
original twenty dollars, and all the baser metals, and all 
the materials and tools he employed, are his undisputed 
property. Surely there is none to assert that the owner’s 
property rights in a twenty dollar gold piece is more than 
coextensive with the actual value of his property, nor that 
his absolute ownership gives him the right to trample upon 
the rights of, or defraud, his neighbor. 

If the rights of an individual in property of which he is 
the sole owner and actual possessor are circumscribed, we 
can certainly challenge the validity of rights in property 
that does not exist. Thus, for example, we may ask, are 
the property rights of the stockholders in a corporation 
greater than the value of the properties themselves. If the 
actual value of the physical properties of a corporation 
fairly computed, is $100,000, but the officials of the cor¬ 
poration arbitrarily give it an inflated valuation of $500,000 
and issue against it $500,000 of stock, does the inflation 
process raise the rights of the stockholders from one hun¬ 
dred thousand dollars to five hundred thousand? Surely 
a $100 stock certificate issued against $20 of actual value, 
confines the stockholders’ rights to the latter figure. 

As a general proposition I maintain that there can be no 
rights where there is no property; and that the property 
rights of stockholders can be no greater than the actual 


104 


The New Capitalism 

value of the property against which the stock is issued. 
I deny that corporation officials or Boards of Directors 
have the right to arbitrarily and fictitiously raise values. 
If they have this right, or authority or power, by whom 
was it conferred ? Has the counterfeiter the right or 
authority or power to convert a $20 gold piece into five 
$20 counterfeit coins? Certainly not! Neither have cor¬ 
poration officials the right to convert $20 of property value 
into $100 of stock value. 

Calling Things by Their Right Name 

I care not by what laws sanctioned nor by what courts 
sustained, the whole thing is a crime against justice, a 
violation of every law of decency. The practice cannot be 
defended any more than the counterfeiter can be defended. 

There is not a state in the Union that has not a law on its 
statute books aimed against the check-raiser and check 
forger. In some states it is considered criminal to issue a 
check against a bank in which its issuer has no deposits; 
and within recent years attempts have been made to declare 
the drawing of a check for an amount greater than the 
drawer has on deposit a criminal offense. 

It is well known that the United States Government 
relentlessly prosecutes and severely punishes the counter¬ 
feiter. What happens to the man who raises a ten dollar 
bill to one hundred dollars? Or converts a twenty dollar 
gold piece into five spurious coins of a supposed value of 
twenty dollars each? Will the Government condone the 
offense? Does the Federal Court extend clemency or 
mercy to a counterfeiter? Not even when the crime was 
committed to provide food for the criminal’s wife and 
children l 1 

I may be old fashioned and behind the times; or perhaps 
my training in logic was defective, but for the life of me 

1 With what severity the Court punishes infractions of certain laws 
may be judged from the following news item : New York, July 20.— 
Theophilus A. Frey, 40, of Davenport, Iowa, was sentenced today by 
Judge McIntyre in General Sessions to from 14 months to five years in 
Sing Sing prison. Frey is said to have sold between $150,000 and 
$200,000 worth of worthless stock in a Wyoming oil company. 



The Capital Crime of Overcapitalization 105 

I can discern no material difference between issuing a check 
against a bank in which the issuer has no deposits and 
issuing ‘ ‘ securities ’ ’ against assets that do not exist. I can 
discern no moral difference between the counterfeiter who 
raises a ten dollar bill to one hundred dollars, or converts 
one twenty dollar gold piece into five twenty dollar pieces, 
and a corporation that issues one hundred dollars of secur¬ 
ities against twenty dollars of actual value. 

Through the instrumentality of overcapitalization bil¬ 
lions of dollars of “ securities’ ’ (call them rather “ inse¬ 
curities ”) have been issued against inflated valuations— 
i.e., against a fictitious valuation many times greater than 
the actual value of the existing assets. We have heard a 
great deal within recent years about the printing presses 
of Russia, Germany, Austria and other European coun¬ 
tries turning out unlimited quantities of paper money. The 
principle upon which the bankrupt governments of Europe 
issue these vast quantities of paper money is in no wise 
different from the principle of inflation upon which cor¬ 
porations issue large quantities of so-called “securities” of 
a face value greatly in excess of the actual value of their 
assets. 

Actwal Value and Inflated Valuation 

When w 7 e discuss a subject of this kind we encounter all 
kinds of objections. Thus I have discovered a disposition 
on the part of certain passionate defenders of, and apolo¬ 
gists for, the Capitalistic System to challenge the conten¬ 
tion that it is wrong and wicked to overcapitalize an indus¬ 
try in excess of its actual value. ‘ ‘ What is value ? ’ ’ asked 
one of these valiant defenders. “Who can say what a piece 
of property is actually worth ? ” To philosophically define 
the word value and enter into a discussion of its absolute 
character and related characteristics, would require a sepa¬ 
rate volume; but for the benefit of those sensitive souls, 
disposed to be generous in defense of their beloved System, 
let us take a concrete example. 

The sundry properties that were consolidated into the 


106 


The New Capitalism 


United States Steel Corporation seem to have had a value 
(most liberally computed) of $562,000,000 on March 31, 
1901; but on April 1, 1901, or thereabouts, these same prop¬ 
erties were declared to have a value of $1,400,000,000. If 
there is to be any discussion about the exact meaning of 
the word value, or what constitutes value, it seems to me 
that I, rather than those opposed to me, have a right to 
ask questions. Who, for example, gave Mr. Morgan the 
right and the power to capitalize for $80,000,000, properties 
(The National Tube Co.) which one of his own agents 
declared were worth, everything included, only about 
$19,000,000? Who gave Mr. Morgan the right and the 
power to add to the “value” of the properties of the 
Carnegie Steel Company, estimated by Mr. Carnegie him¬ 
self as worth between seventy-five and one hundred million, 
a mythical value of three or four hundred million? 

When these elementary questions have been answered 
satisfactorily by those qualified and possessing authority 
in the premises, I shall be glad to discuss the subject more 
fully in due time. In the meantime, and for the sake of 
clarity, I wish to state here that for the purposes of this 
book, when I speak of value of property I have in mind 
the amount of capital actually invested in the properties 
concerned. And let it be understood that, in addition to 
the amount of capital actually invested, I am willing to 
make due allowances and liberal concessions—in brief I am 
willing to accept a fair and reasonable estimate of values 
of properties, but not an excessively inflated valuation, 
arbitrarily fixed by interested parties. 

When Is a Crime Not a Crime 

In December, 1921, Henry Ford proposed a plan for the 
financing of the Muscle Shoals plant. Mr. Ford proposed 
that instead of floating a bond issue which would inevitably 
fall into the hands of Wall Street brokers and bankers, the 
Government issue 1,500,000 new $20 bills ($30,000,000) 
which he said would be backed “by the imperishable and 
inexhaustible energy of the Tennessee river, ’ ’ which energy 


The Capital Crime of Overcapitalization 107 

Mr. Ford intended to harness to the Muscle Shoals plant. 

I shall say nothing either in criticism or in commendation 
of Mr. Ford’s proposal; it is of no consequence at this 
time whether I consider it meritorious or otherwise. What 
interests us is the savage attack made upon Mr. Ford and 
his plan, by a number of bankers and financial writers who 
protested against it for sundry reasons, chief among which 
was their contention that the water in a river has no 
stability. 

(In comment I desire merely to say that the water in 
the Tennessee, or any other river, for the matter of that, 
has greater “stability” than the water in the stocks of 
most of the Capitalistic corporations.) 

The aforesaid bankers and financial writers said that 
they considered the mere suggestion that the Government 
issue paper money “backed by nothing more stable than 
the unharnessed power in the Tennessee river” nothing 
short of a crime. 

Isn’t it rather strange that the bankers and financial 
writers who pretend to be horrified at Mr. Ford’s proposal, 
have in all these years discovered nothing criminal in the 
Capitalistic practice of issuing unlimited quantities of 
paper “securities” by corporations against arbitrarily cre¬ 
ated and excessively inflated property ‘‘ values. ’ ’ Nor have 
they found anything to condemn in flooding the market 
(at the rate of five or more billion a year) with “securities” 
based on nothing more substantial than a mythical “earn¬ 
ing power.” But Mr. Ford’s proposal, which involves the 
issuance of a measly thirty million real dollars (backed by 
the United States Government as well as by “ the imperish¬ 
able and inexhaustible energy of the Tennessee river”) they 
characterize as a “ crime. ’ ’ Who can understand the work¬ 
ings of the Capitalistic mind; who can follow its serpentine 
logic ? 

As Inflation Increases—Value Beelines 

It is rather singular that the Capitalistic economists, so 
fecund in formulating economic ‘ ‘ laws ’ ’ that explain injus- 



108 


The New Capitalism 


tices against non-investors, and justify outrages upon the 
general public, have been so utterly lacking in vision and 
barren of ingenuity as not to have hit upon the obvious 
economic law with regard to overcapitalization. I hope 
they will not accuse me of impertinence for venturing to 
formulate a “law” that should have been put into words 
several decades ago. Here is the law, stated in general 
terms: 

The value of stocks declines in inverse ratio to the in¬ 
crease in the inflation of capitalization. 

The greater the amount of securities issued the less valu¬ 
able the securities are bound to become. If against the 
assets of a corporation, liberally valued at, say, one million 
—four million of securities are issued, then the actual value 
of the securities is twenty-five cents on the dollar. That 
is to say, there is only twenty-five cents of actual value in 
every dollar of the so-called “securities.” The bona fide 
investor who pays $100 for a $100 stock certificate is paying 
$75 for inflation—a value that does not exist—except on 
paper and in the minds of the officials of the corporation. 
In the event of liquidation of an excessively overcapitalized 
corporation, the stockholders could not, even under the 
most favorable circumstances, realize more than a small 
fraction of the amount they invested. The corporation 
officials know that there is no value there; indeed it has 
been repeatedly admitted in so many words. 2 

Overcapitalization Defined 

But when we view this whole subject from the standpoint 
of the wage earner—the non-investor—a different vision is 
unfolded to our intelligence. No appeal is made to the 
imagination; no thrill of delight fills the soul. Blunt ques- 

2 Within recent years an ingenious device has been invented. The 
inspiration for the substitution of “no par value” of stock issues, is 
probably to be found in a burning desire to circumvent the Income Tax 
law. But if so it is a case of killing two birds with one stone. Not 
only is the Income Tax law circumvented, but the constantly dimin¬ 
ishing value of stocks is concealed from all those who give no thought 
to anything except stock market quotations. Stocks issued without 
“par value” retain their fluctuating gambling value. Unwary investors, 
especially “widows and orphans,” are not expected to discover nor to 
pry into the mysteries of this rather ingenious device. 



The Capital Crime of Overcapitalization 109 

tions as to the why and wherefore, and the significance of 
it all, demand a comprehensible answer. Reduced to com¬ 
mon sense terms: What is overcapitalization? 

Overcapitalization is the process of creating fictitious 
wealth by a scratch of the pen, and entering it on the books 
of a corporation as if it were actual capital, regarding it as 
if it were actual wealth, and rewarding it as if it were 
actual capital. Mark you! I differentiate between actual 
capital—capital behind which there are actual assets, and 
counterfeit capital, behind which there are no assets. It 
is this absence of actual assets that makes such capital 
fictitious wealth. 

By overcapital I mean capital or wealth that does 
not exist, and since it does not exist it can have no earning 
power; and having no earning power, it cannot and should 
not be rewarded. Yet both are handsomely rewarded under 
the system of overcapitalization. Indeed it was to reward 
fictitious wealth and counterfeit capital that the clever 
scheme of overcapitalization w T as invented. 

What would you think if an employer of a thousand 
people with a weekly pay roll of say $25,000, were to dis¬ 
tribute another $25,000 a week among another thousand 
men and women who did no work whatever in his estab¬ 
lishment? Within how many weeks, do you think, that 
employer would be bankrupt, or would be restrained as 
irresponsible, probably at the instigation of some indignant 
stockholder? Yet that is precisely what the Capitalistic 
System is doing when it pays dividends on tens of billions 
of inflated capitalization and imbues with an “ earning 
power” wealth that does not exist. Capital that has never 
been invested and “wealth” that does not exist, is not 
entitled to any reward, any more than men and women who 
render no service are entitled to a reward. 

Where the Party of the Second Part Comes In 

Let it be remembered that I haven't one word to say 
against wealth that is real and capital that is actual—that 
is, wealth that represents actual property, and capital that 



110 


The New Capitalism 


is covered by actual assets; to both I am willing to accord 
a decent reward. But when I speak of o^ercapital I mean 
wealth or capital that does not exist; and since it does not 
exist it can have no earning power; and having no earning 
power it cannot and should not be rewarded. But interest 
on this non-existing wealth; and dividends for this non¬ 
existing capital, are ruthlessly collected from the Party of 
the Second Part, from those who have no participation in 
the non-existing wealth and no share in the non-existing 
capital—that is to say, from the wage-earners—the non¬ 
investors—the public. 

The summarized effect of all this on the Party of the 
Second Part—the wage-earners, the non-investors, the pub¬ 
lic—can be expressed in a few words. It has given us the 
phenomenon called the High Cost of Living. In other 
words the people are compelled to pay interest and divi¬ 
dends on billions of non-existing wealth and capital. As a 
result prices have been advanced to a point where wages 
are no longer sufficient to maintain a decent living standard. 

As long as corporations overcapitalize and corporations 
and individuals are permitted to collect tribute from the 
public on an inflated valuation of their properties—so long 
will there be unrest and turmoil, bound, eventually, to end 
in disaster. There is but one remedy. Overcapitalization 
and Inflation must be abolished or destroyed. 


CHAPTER XI 


The Railroads—An Object Lesson in 
Overcapitalization 


S a “horrible example” of the evil of overcapitali¬ 



zation, and all that inflated valuation implies, I 


A. point to the railroads of the United States. From 
1876 to 1913, 754 roads, involving 145,176 mileage, have 
been under receiverships. During the year 1913 alone, 
seventeen roads, operating 9,020 miles, and having a gross 
capitalization of $477,780,820, were placed in the hands of 
receivers. 1 From 1914 to 1919 inclusive, seventy-seven 
additional roads, with 35,053 mileage, and a stock and bond 
valuation of $1,793,687,304, were placed under receiver¬ 
ships. 2 According to the same authority, from 1876 to 
1919 there were 1099 railroad foreclosures. Today nearly 
all the roads, according to the authority of railroad officials, 
are bankrupt, in the hands of receivers, or on the verge of 
bankruptcy. 

This is passing strange, for if ever a business has had 
advantages, and opportunities to make money, it is the 
railroads. There isn’t a thing on your body, nor in your 
home or office; hardly a thing you eat, or wear, or use, on 
which the railroads have not had a “rake off” and on 
many articles several “rake offs”; for nearly everything 
that enters into use or consumption—every article of com¬ 
merce—is transported at least once, and frequently two and 
three times in the raw, semi-finished or finished state via 
the railroads. 3 

1 “Statistics of American Railways for 1913.” 

2 “The Manual of Statistics—Stock Exchange Handbook, 1920.” 

3 In 1913 Senator Gore of Oklahoma stated that the value of the 
farm products amounted to six billion dollars, and that the railroads 
received five hundred million dollars merely for hauling them. The 
railroads are today receiving more than a billion and a half for merely 
hauling coal. Take the item of freight for any commodity; it is a 
colossal sum in the aggregate. And the public pays it all. And I am 
not saying one word about the “Pittsburgh Plus” plan, under which 
the public pays millions for freight that was never expended, on goods 
that were never hauled. 


Ill 



112 


The New Capitalism 


There is not a single business in the United States that 
has received greater encouragement or been given so much 
help, financial and otherwise, enjoyed subsidies, guarantees 
and privileges; land grants, the right of way and eminent 
domain—as the railroads. From the very beginning they 
were considered a great national asset, and legislation, both 
federal and state, favorable to their existence, development 
and growth, was freely enacted. 

And yet today, practically all, with a few conspicuous 
exceptions, are bankrupt, in the hands of receivers, or on 
the verge of bankruptcy. The properties are run down, 
equipment and roadbeds are admittedly in a sorry state, 
maintenance and upkeep have been neglected to a criminal 
degree. So terrible was the condition of the railroad sys¬ 
tems, so low was their efficiency, that when the Government 
took over the railroads upon our entrance into the war, it 
was imperative to immediately appropriate 750 million of 
dollars to put them into fairly decent condition. The peo¬ 
ple of the United States were forced to provide the 750 
million dollars necessary to rehabilitate the railroad prop¬ 
erties owned by the Wall Street Capitalists. 

It is well known that many of the railroads have not been 
paying any dividends on their stock for years, besides de¬ 
faulting interest on their bonds, while increasing, rather 
than reducing, their funded debt. Why are the railroads 
in so critical a condition today? The dominant reason is 
that they have been outrageously overcapitalized, while 
those who own and control them—the Wall Street Capital¬ 
ists—have been reaping enormous incomes variously dis¬ 
guised as expenses, fixed charges, reserves, etc., on an 
inflated valuation. 

Inflated Valuation 

There are some financial writers who would have us 
believe that the railroads are not overcapitalized. Their 
claim is disproved by the known facts. One has but to 
delve into the history of some of the prominent roads to 
discover OVERCAPITALIZATION and INFLATION 


The Railroads—An Object Lesson 113 

written in big letters all over the properties. Moreover, 
official investigations of some of the modern railroad scan¬ 
dals brought many ugly things that had to do with watered 
stock and stock jobbing, to light. Besides there are Court 
records that substantiate the fact. 

About ten years ago the capitalization of all the railroads 
was said to be fifteen billion dollars. With these attentive 
ears of mine I heard Senator Cummins, co-author of the 
Esch-Cummins Bill, publicly declare at that time that “one- 
half of this amount is ‘water’.” * 4 Yet not long ago the Inter¬ 
state Commerce Commission, basing its estimate on that 
ingenious Capitalistic device ‘ ‘ replacement value, ’ ’ gave to 
the railroad properties a valuation of $18,900,000,000, and 
it is upon this valuation that the Esch-Cummins law in¬ 
structed the Board to adjust rates so as to yield a return 
of six percent. 5 

There may be those who see nothing wrong in the Capital¬ 
istic inflation device called “replacement” valuation. I am 
sorry for them, and I’ll not argue with them. But I’ll 
state my objection to the “replacement” device in the 
briefest possible form. “Replacement” valuation means 
that the public is being charged interest on an investment 
that was never made, interest on high wages that were not 
paid, interest on high priced materials that were not used, 
interest on stocks that have no assets behind them, interest 
on bonds issued against nothing. 

Oh, yes, I know that “replacement valuation” is in gen¬ 
eral use—but that doesn’t make it right. And its general 
use explains many things that enter into the High Cost of 
Living problem. For example: One of the reasons why 
rentals are high is because they are based on a “replace¬ 
ment valuation ’ ’; the tenants are charged high rents com¬ 
puted on high wages that were not paid, and high priced 

• 

4 This statement was made on the stage of Orchestra Hall, Chicago. 
I sat within twenty feet of the speaker. 

5 Edgar E. Clark, Chairman, said that the Commission based its 
“valuation” first, on the cost of reproduction as of the date of valuation; 
then upon the cost of reproduction less depreciation, which represents 
the depreciated condition of the property as of that date; and then 
the actual cost to date. 



114 


The New Capitalism 


materials that were not put into the building, etc. Those 
afflicted with moral obliquity may defend, but they cannot 
justify, the practice. 

An Old—Biot not the Sweetest Story 

Ever Told 

“Replacement valuation” is only a new name for an old 
Capitalistic crime. Almost from the very beginning the 
railroads adopted bookkeeping methods which falsified cost 
of construction as well as their capitalization. 

D. C. Cloud in his “Monopolies and the People” (pub¬ 
lished in 1874) says: 

“Their balance sheets do not present the truth in any 
instance, and have not that purpose, being only an exhibit 
that will apparently justify the many extortions and decep¬ 
tions practiced by the corporations. The actual cost of 
constructing and stocking the road is not given; instead we 
have the cost as represented by the stocks and bonds issued 
and watered.” And he gives many examples and the per¬ 
tinent facts and figures. 

Senator La Follette in his speech before the Senate 8 de¬ 
clared that the Hepburn-Dolliver Bill “required an ac¬ 
counting from the railroads as to what they were doing, a 
' uniform system of bookkeeping, so that the Interstate Com¬ 
merce Commission could find out whether they were 
doctoring their reports made with regard to these various 
charges, upon which rates charged the public were based.” 

Senator La Follette further stated that year after year 
since the passing of the Hepburn-Dolliver Bill, the Com¬ 
mission said to Congress: “We cannot tell whether these 
maintenance charges are honest or not. The system of 
bookkeeping is such that we are all at sea about it. We 
know nothing about it, and the railroads may be taking an 
undue advantage of us.” 


6 February 21, 22, 1921. Published in the Congressional Record. 
March 14, 1921. 



The Railroads—An Object Lesson 115 
Just One “News” Item 

“Washington, Dec. 2.—Use of intercorporate holdings in 
figuring rates was charged against the railroad corporations 
of the United States by Frank J. Warne, economist for the 
railroad brotherhoods, in testimony before the Senate Inter¬ 
state Commerce Committee. He added that as a conse¬ 
quence continuously lower returns are reported by the 
railroad companies. 

“Mr. Warne said that the capital accounts of the cor¬ 
porations showed investments of approximately $5,213,- 
000,000 in stocks and bonds of other companies, or about 25 
per cent of the entire outlay claimed as transportation 
investment. Such investments, he asserted, were not always 
governed by their anticipated revenue production, but were 
made for the purpose of controlling or influencing man¬ 
agements. 

“The intercorporate holdings, the witness said, had re¬ 
sulted in many forms of evil in financing, not the least of 
these, he added, being the deception practiced on the public 
in the corporation’s efforts to show poor returns on the 
investments as a whole. 

“Mr. Warne said other results included inflation of 
property investment, overcapitalization, involving the ex¬ 
cessive issues of securities; speculation with corporate 
funds, ‘reckless and profligate’ financing, secret and con¬ 
fusing bookkeeping, manipulation or juggling of accounts 
and falsification of records.” 7 

But why waste more space to establish the fact of over- 
capitalization since it proves itself. 

The Virtue of Persistency 

For j^ears prior to the war the railroad executives clam¬ 
ored for rate increases. For years they argued that the 
rates they were receiving did not yield them a big enough 
income on the “amount invested”; and they offered a won¬ 
derful array of statistics to show that they were entitled 
to a much higher profit on their “investment.” In 1913, 


7 Chicago Herald-Examiner, Commercial Edition, December 3, 1921. 



116 


The New Capitalism 


Samuel Rea, as President of the Pennsylvania Railroad 
Company, in the course of giving his testimony before the 
Interstate Commerce Commission in the matter of increased 
freight rates said: 

“We know it is essential for us to maintain adequate 
dividends as well as an adequate margin over the dividends 
if we are to obtain from the investing public the capital 
needed to provide the additional facilities to take care of 
the usual growth of traffic; and we must have some leeway 
against business depressions, which occur periodically, and 
for other extraordinary emergencies that may arise.” 

All Good Things Come to Those Who Wait 

The war was a windfall for the railroads. It brought 
them all the blessings for which they had sighed for many 
years. For one thing, it brought them a goodly sum of 
money , taken directly from the public to rehabilitate their 
broken down properties; besides the Esch-Cummins Bill, to 
say nothing of sundry other good things. But alas! their 
joy was not unalloyed, for a part of the increased revenue 
flowing into the coffers of the roads, went to Labor, and 
that is a thing not even to be dreamed of in the Capitalistic 
philosophy. 

Eliminating Labor f rom the Equation 

Even before the Esch-Cummins Bill was passed the rail¬ 
roads opened aggressive war on Labor; for it is no part of 
the Capitalistic scheme that those who labor be permitted 
to enjoy a greater measure of prosperity than is sufficient 
to enable them just to subsist. The benefits accruing to 
salaried employees from the Adamson Law T , and those be¬ 
stowed by the railroad administration and the Railway 
Wage Commission during the war had to be revoked or 
nullified. Toward the end of 1920 a nation-wide campaign 
began in earnest. Railroad executives, and railroad sta¬ 
tisticians unloosed a flood of oratory, press literature and 
an avalanche of statistics, all calculated to show, 1: That 
railroad employees were being overpaid; and 2: that unless 


The Railroads—An Object Lesson 117 

all of the revenue provided by the Esch-Cummins law could 
be kept in the hands of the Wall Street crowd the rail¬ 
roads and the country would surely go to hell. 

On January 31, 1921, the Railroad Managers met in 
Chicago for the specific propaganda purpose of excluding 
Labor from participation in any share of the Government 
award under the Esch-Cummins law. At the opening ses¬ 
sion Mr. W. W. Atterbury, Chairman of the Labor Com¬ 
mittee of the Railroad Executives ’ Association, and Vice 
President of the Pennsylvania lines, demanded immediate 
abrogation of the war time wage adjustment, and stated 
that only a w r age cut totalling $500,000,000 a year can pre¬ 
vent a panic. The Railroad Managers were successful; the 
wage reductions they demanded were allowed. At the same 
time the railroads announced that there would be no re¬ 
duction in freight and passenger rates. Perish the thought! 

Railroad Wage Statistics 

The statistics with regard to wages, employed in the 
campaign, are particularly interesting. They came from 
a dozen different directions, but all from one source. There 
is a deadly similarity about them. It is clear that the rail¬ 
road statisticians all drink out of the same cup, and eat out 
of the same hand. One of the earliest and most conspicuous 
of the statisticians was Samuel O. Dunn, editor of Railway 
Age. In an address before the New York Railroad Club 
(January 21, 1921) he explained that the inability of the 
railroads to earn the return expected was chiefly due to 
4< the enormous payroll,” “In 1914,” he said, “the railroads 
had 1,700,000 employees, and paid them $1,337,000,000. In 
1917 they had about the same number of employees and 
paid them $1,740,000,000. Today, because of the establish¬ 
ment of the eight-hour day and the advance in wages which 
has been granted, they have about 1,950,000 employees who 
are being paid $3,600,000,000 a year.” 


The New Capitalism 


118 


Accepting Mr. Dunn s figures we arrive at the conclusion 
that the average wage per railroad employee 

In 1914 was $ 787 a year 8 
In 1917 was 1024 a year 
In 1919 was 1846 a year 

Merely to show that it is possible to arrive at different 
results from a computation of the same statistics I give the 
following from the report of the Railway Wage Commis¬ 
sion according to which: 

“ Fifty-one percent of all employees during December, 
1917, received $75 per month or less, 80 percent received 
$100 or less; that even among locomotive engineers the 
majority received less than $170 per month, and that be¬ 
tween the grades receiving from $150 to $250 per month 
there was less than 3 percent of all employees, aggregating 
less than 60,000 out of 2,000,000. 

“One hundred and eighty-one thousand, six hundred 
and ninety-three men received between $60 and $65 per 
month; 312,761 received from $65 to $75 per month; the 
average pay of the clerks being $56.77 per month; section- 
men received $50.31 per month; the average pay of un¬ 
skilled labor was $58.25 per month; station service 
employees averaged $58.57; freight brakemen and flagmen 
averaged $100.17; and passenger brakemen and flagmen 
averaged $91.10.” The report adds: 

“These, it is noted, are not prewar figures; they repre¬ 
sent conditions after a year of war, and two years of rising 
prices. And each dollar now represents in its power to 
purchase a place in which to live, food to eat, and clothing 
to wear, but 71 cents as against the 100 cents of Jan¬ 
uary 1, 1918.” 


8 Slason Thompson said in 1914 that the “average” holdings of 
the railroad stockholders was $15,000. At a six percent dividend 
rate the “average” railroad stockholder, giving not an hour of his 
time or service to the roads, would receive as his reward $900, which 
is $113 more than the “average” railroad employee received as wages 
for a year’s work in 1914. 



The Railroads—An Object Lesson 119 
Cut—“From Nearest the Heart” 

But let me return to Mr. Dunn’s statements and sta¬ 
tistics. He insisted that operating expenses must be cut. 
But note you well! the cutting was to apply to only one 
operating item— labor; although it would be much easier 
to cut some of the other operating items, such as coal, 
materials and supplies, particularly since the same financial 
group that controls the railroads also controls coal, and 
practically all materials and supplies charged against rail¬ 
road operating expense—and are reaping enormous profits 
from the sale of their own commodities to themselves. 
Take, for example, the item of coal. The cost of locomotive 
fuel in 1900 was $90,593,965, or $475 per mile per annum; 
whereas in 1920 it was $672,891,964, or $2778 per mile per 
annum; an increase of $582,297,999, or an increase of 
$2303 per mile—for coal. Increase in wages does not ex¬ 
plain this enormous increase in the cost of fuel, which came 
from the mines belonging to the same group of men who 
also own the railroads. 

Frank Farrington, head of the Illinois miners, in an 
address (March 28, 1921) said that the railroads consume 
one-third of the soft coal output and do not pay a decent 
price for it, leaving the public to stand the difference. The 
railroads are given coal contracts at less than cost of pro¬ 
duction. 9 If the facts are as stated by Mr. Farrington, one 
wonders how the railroads explain the nearly $600,000,000 
increase in their coal bill over former prices. 

Parenthetically, while on the subject of coal, it may be 
stated here that the average freight rate for coal, before 
the war, was about $1.50 a ton, while the present rate is 
about $3.00. That is to say, the public is paying to the 
railroads $825,000,000 more in freight cost than formerly. 
This is for bituminous coal only. I have not gone to the 
trouble of looking up the statistics for anthracite coal. In 
brief, the miners get about $1.12 a ton for mining coal, 


9 See Chicago Tribune, March 29, 1922. 





120 


The New Capitalism 


while the railroads get $3.00 a ton for merely hauling it. 
There’s something wrong somewhere. 10 

A Feiv Pointed Questions 

I have no desire to argue the several points involved in 
the various wage controversies going on at present. But I 
will say that when Messrs. Dunn, Atterbury, J. DeWitt 
Cuvier, Julius Kruttsehnitt, Slason Thompson, et al., try 
to interpret the chronic inability of the railroads to make 
a creditable showing by the present high cost of labor— 
wages—they are simply stultifying themselves. Why did 
not the railroads make a better showing in all the previous 
years when wages were considerably lower than they are 
at present? 

Was there ever a time when the railroads made money? 
If the railroads did not, in the past, and are not now mak¬ 
ing any money, if they are a losing venture, as many of the 
railroad executives would have us believe, how will you 
explain the dogged tenacity with which the Capitalistic 
Wall Street group clings to these “unprofitable” prop¬ 
erties? W. W. Atterbury, Chairman of the Labor Com¬ 
mittee of the Railroad Executives’ Association, and Vice 
President of the Pennsylvania lines, on January 31, 1921, 
publicly stated that the railroads were on the verge of 
bankruptcy, and to prove that he spoke the truth the 
Pennsylvania railroad lowered its dividend rate to the 
stockholders from six to four percent. 11 

But on January 28, 1921, only three days before Mr. 
Atterbury’s gloomy address in which he emphasized the 
serious financial condition of the railroads, his road, the 
Pennsylvania, sold a $60,000,000 fifteen year 6y 2 percent 
bond issue within an hour’s time. The issue was heavily 
oversubscribed. I find it difficult to explain the avidity 

10 President Lewis, of the mine workers, said, March, 1921, that 
the average income of the miners in the bituminous field in 1921 was 
only about $700. Yet in October, 1921, soft coal sold for $10.41. 
The cost of labor was $1.97. Who gets the difference? 

11 Mr. Atterbury subsequently repeated his statement to the Penn¬ 
sylvania employees by way of proving to them that they must accept 
lower wages. Receivership stared them in the face, he told them. 



The Railroads—An Object Lesson 121 


with which Capitalistic “investors” subscribe for “secur¬ 
ities” of unstable properties in a business that, according 
to Mr. Atterbury and other railroad officials, is insolvent, 
and whose earnings are below normal. Incidentally, it may 
be added here that the new Pennsylvania bonds were 
promptly admitted to trading on the New York Stock 
Exchange. 

Only a few more questions while I am on this subject! 
Who were the first millionaires in the United States ? The 
Vanderbilts, Goulds, et at. And how did they build up 
their immense fortunes ? Out of profits made from railroad 
operation and stock transactions. Who are the multi¬ 
millionaires today? The Harrimans, Hills, Rockefellers, 
Morgans, et al., the railroad magnates—whose aggregate 
wealth—a goodly portion of which came from railroad 
profits and stock operations—runs into the billions. 

No! it isn’t difficult to understand why some of the rail¬ 
roads out of which a small group of insiders have made 
immense fortunes, are bankrupt, or on the verge of bank¬ 
ruptcy. 12 The reason is not far to seek. Read the history 
of the railroads in the United States. Sold out from one 
to three times a year for the past fifty years, on the Stock 
Exchange, each time at a tremendous profit to a small group 
of manipulators! Stockholders unhesitatingly frozen out, 
bond holders cheated, properties wrecked, property ac¬ 
counts juggled—to say nothing of the shameful transactions 
revealed by Court inquiries into such roads as the Rock 
Island, New Haven, and other roads. 

The “Widows and Orphans” in the Lion y s Den 

We have been told that there are about 600,000 stock¬ 
holders in the first class roads, and that there are many 
“widows and orphans” among them, but we are not told 

12 However near to “bankruptcy” some of the roads are may be 
judged from the following item which appeared in the Chicago Journal 
of Commerce, March 1, 1920. “Washington, Feb. 28 (Special).—The 
Chicago, Burlington and Quincy Railroad Company was today granted 
permission to issue $60,000,000 capital stock as a stock dividend to 
be paid out of surplus earnings.” This is only one of many similar 
“news” items. 



122 


The New Capitalism 


that the report of the Interstate Commerce Commission of 
March 25, 1919, shows that the majority of the stock in 
each one of these roads, and their subsidiaries, is held by 
fewer than twenty of the big stockholders in each road. 
Nor has any statistician for the railroads ever pointed out 
that the largest part of the six percent return guaranteed 
by the Esch-Cummins law, amounting to over a billion dol¬ 
lars, will go to the big stockholders—a few thousand in 
number. The bona fide small stockholder, if he will be bene¬ 
fited at all by the distribution, will share in only a small 
part of it, for it can be clearly shown that the small investor 
is always the goat. Scant consideration is extended him 
either by the railroads, or any of the corporations in whose 
securities he has, in good faith, invested. A few of the 
most recent occurrences will at least give color to my asser¬ 
tion with regard to the small stockholders in railroad, and 
other, securities. 

In the first place there has been a terrific fall in the 
market price of railroad stocks (and all corporation stocks). 
This means a terrific shrinkage in the value of the holdings, 
of small investors—a loss which means a great deal to 
them. For example: ‘ ‘ The preferred stock of the Chicago, 
Milwaukee and St. Paul Company was sold to the public 
by the Company years ago at par, $100 per share. Divi¬ 
dends have been suspended upon it, and the stock is chang¬ 
ing hands in the market under $40 per share.” 13 (A loss 
of $60 a share.) 

Before the war the Pennsylvania Railroad, considered 
one of the most substantial roads, was paying six percent. 
In 1921 the dividend rate was reduced to four percent. 
Needless to say the market price of the stock declined. 

Slason Thompson, director of the Bureau of Railway 
News and Statistics, is authority for the statement that for 
the past quarter of a century the dividend rate on all 
railroad stocks “has not averaged three percent.” 14 

13 Monthly letter of The National City Bank (New York), Novem¬ 
ber, 1921. 

14 “Statistics of American Railways, 1914.” 



The Railroads—An Object Lesson 123 

Let the bona fide small investors take note of this: the 
dividend rate on their holdings has not averaged three per¬ 
cent. And when we take into consideration the losses they 
have sustained during the last quarter of a century through 
the fall of market values of their holdings, even the less 
than three percent dividend is wiped out of existence. The 
financial writer who recently said “Many railroads turn 
out to be poor investments” told a bitter truth. 

While on the subject of the small investor in railroad 
securities, the following, by B. C. Forbes, another financial 
writer, is of interest here: 

“When the late J. P. Morgan w r as indicted, along with 
Charles S. Mellen, in connection with certain New Haven- 
Grand Trunk Railway maneuvers, he took to bed absolutely 
inconsolable. When, several years later, William Rocke¬ 
feller was indicted, along with other New Haven directors, 
he confided to me one day, in very grave tones, that it was 
not comfortable to be under indictment and to have the 
possibility of a prison sentence hanging over one. 

“These indictments are recalled to mind by the suit 
brought by a protective committee of Denver & Rio Grande 
Railroad stockholders against men who were directors of the 
road. The stockholder’s committee petitions the Supreme 
Court to compel the directors to account for $200,000,000 
alleged to have been lost through stock manipulation, con¬ 
spiracy, collusion and forced and fictitious sales of railroad 
property. 

“It is probably well to have this whole Denver & Rio 
Grande-Western Pacific matter cleared up to the satisfac¬ 
tion of all parties. While the standard and character of 
the men sued made it hard to believe for a moment that 
they would have laid themselves open to the charges made, 
nevertheless the losses sustaind by Denver & Rio Grande 
security holders have been so heavy that intense bitterness 
and suspicion have been created. 

“The first purchase of securities I ever made was ten 
shares of Denver & Rio Grande preferred stock. I paid 
about $800 for it. I sold it for about $100. Naturally, like 


124 


The New Capitalism 


other stockholders, I had a feeling that the Denver & Rio 
Grande got the thin end of the stick in its dealings with 
Western Pacific, which virtually gobbled up the whole 
property. 

“If the suggestion of taint attaches to the Denver & Rio 
Grande directors they ought to welcome the receipt of a 
clean bill of health from the Supreme Court. On the other 
hand—well, let the law take its course. ’ ?15 

The bona fide small investor who flatters himself that he 
is a beneficiary of the Capitalistic System would do well to 
wake up out of his dream. 

An Interlude 

If any one imagines that the railroads, even though they 
succeed in materially bringing down wages of all railroad 
employees, will be content with the resultant increase in 
revenue or profit, let him disabuse his mind of any such 
imaginings. Let him remember that since 1907 the Inter¬ 
state Commerce Commission has permitted an addition of 
seven billion dollars to the property investment account of 
the roads, although the mileage increased only by about 
24,000 miles—about nine percent increase in mileage. 

But read on! Walker D. Hines, former director general 
of railroads, declared before the Senate Interstate Com¬ 
merce Commission that the American railroads must spend 
more than one billion dollars a year in property improve¬ 
ments for years to come. Mr. Hines expressed opposition 
to changes in the transportation act on the grounds that 
such alterations would destroy possibilities of betterment 
by the railroads. Prom Mr. Hines’ statement we can log¬ 
ically conclude two things: First, that the railroads have 
no intention to reduce freight and passenger rates even 
after their “liquidation of wages” is completed; and sec¬ 
ondly, that the “property account” of the railroads will 
be increased for years to come at the rate of a billion dollars 
a year. Increase of property account is, after all, simply 


is B. C. Forbes in the Chicago Herald-Examiner, March 28, 1921. 



The Railroads—An Object Lesson 125 


a matter of bookkeeping, rather than of actual investment. 

But that is not all! S. Davies Warfield, President of 
the National Association of Owners of Railroad Securities 
(a rather big title) stated before the same committee that 
a less return than that provided by the Esch-Cummins law 
would not maintain transportation. ‘ ‘ The question for the 
moment is,” said Mr. Warfield, “can sufficient revenue be 
attained from rates and fares that will be considered rea¬ 
sonable by the public and the shippers, or will part of the 
money have to he supplied by taxation?” 

From these, and many other statements made by railroad 
executives and representatives it is clear what is going on 
in the Capitalistic mind. The Government—that is the 
public—has already been compelled to supply more than 
a billion dollars to bolster up the railroad properties, and 
if all the “claims” presented are allowed, probably an¬ 
other billion of the public’s hard earned money will have 
been poured into the coffers of the roads. 

I have listened to eloquent denunciations of the Adamson 
law, which, it cannot be denied, was favorable to railroad 
employees, if you consider a law that grants a wage more 
nearly commensurate with living costs as a special favor. 
I have heard and read bitter attacks upon the Railway 
Wage Board and the Railroad Administration during the 
w r ar. But not one word of criticism had the speakers and 
writers to make against those whose wrong doings and mis¬ 
deeds are written in many railroad hearings, investigations 
and Court records; not a syllable of reprobation against 
those who, through sundry methods of exploitation of 
Labor and the public (as well as the small investors) have 
augmented their fortunes; not a whisper of condemnation 
against those whose mismanagement is responsible for the 
wretched condition of the properties entrusted to their care, 
and to rehabilitate which a heavy burden of taxes has been 
placed upon our shoulders. 

I do not understand the temper of a public that will 
allow itself to be fleeced without so much as a peep of pro¬ 
test. And yet the past deeds and future designs of the 


126 


The New Capitalism 

railroads are “like glass; the very sun shines through 
them. ’ ’ 

But the Railroad Executives Are Right! 

When the railroad executives contend that they cannot 
pay decent wages and also pay themselves huge sums as 
dividends on stock and interest on bonds—they are right, 
absolutely and demonstrably right. It is impossible for any 
business, whatever its character, to pay dividends and inter¬ 
est on an excessively inflated valuation. It cannot be done 
longer than for a period of about twenty years; after which 
the system is bound to break down. It can be carried on 
for a longer period only on one condition, and that is that 
the money necessary to pay dividends on non-existing cap¬ 
ital be extorted from the general public by simply ruinous 
rates or prices. In this regard, however, the railroads are 
handicapped. They cannot continue to raise freight and 
passenger rates indefinitely. There is a limit beyond which 
it is impossible to go. If freight rates become too exor¬ 
bitant it reacts on the volume of freight traffic, and auto¬ 
matically reduces the volume of revenue. If passenger 
rates are raised to a point that the public considers exces¬ 
sive, it automatically checks travel, and this, in time, seri¬ 
ously affects the roads’ revenue. And so it is not difficult to 
understand the unwillingness of the railroads to pay decent 
wages to the employees, as it is only by cutting wages and 
keeping freight and passenger rates exorbitant that they 
can pay themselves dividends on their watered stock and 
interest on their bonds. The public must pay, the wage 
earner must pay, and the small investor must pay. 

The Conclusion 

What is the real purpose of this chapter ? Simply this— 
to go on record as saying that what has happened to the 
overcapitalized railroads in the United States is going to 
happen to every overcapitalized industry or business of 
whatever kind. It is inevitable! Any corporation whose 
securities issues, based on inflated valuation, are greatly in 


The Railroads—An Object Lesson 127 


excess of actual assets; any industry that rewards capital 
that doesn’t exist, is bound, ultimately, to end in disaster. 
Through the device of lower wages and higher prices the 
Capitalistic group may succeed for a while longer to delay 
the day of reckoning; but it cannot avert the disaster. And 
in every instance the wage earners—the non-investor group, 
the public, must pay the wdiole bill. 


CHAPTER XIT 


The Stock Market 


I AM aware that the stock market, or Stock Exchange, is 
considered by many as an essential institution. With¬ 
out a stock market, we have been told, industry would 
languish, investments could not be made, etc., and that 
taking it all in all the world could not very well get on 
without it—no progress could be made. 

Originally the Stock Exchange might be said to have had 
legitimate functions and served a legitimate purpose. “In 
their origin Stock Exchanges appear to have been free to 
the use of anyone who wished to buj 7 " and sell, and it was 
probably with this function in view that some of the older 
exchanges, notably the Paris Bourse, were located in build¬ 
ings erected at the public expense.” 1 

But the stock exchange of today has departed both 
from the original intent and purpose. Its conservative 
character of a public convenience has degenerated into a 
madly speculative game for the immediate and ultimate 
benefit of a select coterie of Financial potentates and Cap¬ 
italistic wizards. Membership in a modern Stock Exchange 
is “regarded very valuable, those in New' York having been 
quoted as high as $97,000 in the most prosperous times.” 2 

The first book I read, about thirty years ago, on the sub¬ 
ject of the Stock Exchange and stock transactions was 
entitled “Ten Years in Wall Street.” I can’t recall the 
author r s name. The stock transactions were then confined 
almost exclusively to rail and transportation stocks. The 
industrials had not yet developed into marketable securities. 
Books of more recent date, such as “The Stock Exchange 


1 “The New International Encyclopedia,” Vol. XVIII, p. 579. 

2 “Monetary and Banking- Systems,” by Maurice L.. Muhleman, L.L.M. 

128 




The Stock Market 


129 


from Within,” by W. C. Van Antwerp; “The Work of 
Wall Street,” by Sereno S. Pratt, and “The Stock Mar¬ 
ket,” by S. S. Huebner, Ph.D., give a fair idea into what 
kind of an institution the stock market has developed, or 
degenerated. 

Were it my particular design to expatiate on the chi¬ 
canery of the stock market, and to expostulate on its utter 
depravity, nothing would better serve the purpose than to 
quote liberally from some of the books written in defense 
of and by way of apology for the stock market. But since 
moralizing is foreign to my present plan I will not concern 
myself with aught that has not a direct bearing on the sub¬ 
ject under discussion. 

Shearing the Lambs in the Shambles 

Why do I write of the stock market and its transactions 
at all ? For very definite reasons, which I shall state briefly. 
For one thing I want to emphasize that the stock market 
and all its transactions are for the enrichment of a small 
group. Authorities differ as to the number of investors. 
The latest estimate is by Professor Huebner, who claims 
that “exclusive of the numerous holders of Government 
bonds, there are probably 4,000,000 persons who are share¬ 
holders and bondholders in American corporations.” 

Accepting his estimate it is to be noted here that many 
of these ‘ 4 investors, ’ ’ and for whom financial writers evince 
such tender solicitude, are mere lambs, invariably coming 
out of the pit bleeding, gored by the bulls and clawed by 
the bears—while the inner circle of Capitalistic stock 
market gamblers and manipulators ultimately reap what¬ 
ever profits are derived from the buying and selling of 
stocks. 

G. C. Selden, in an article entitled “The Machinery of 
Wall Street: Why It Exists, How It Works, and What It 
Accomplishes, ’ ’ says: 

‘ ‘ Small investors, even though they may be very numer¬ 
ous, do not usually have much influence on the immediate 
movements of prices. The main contest is between the big 


130 


The New Capitalism 


investors—who might as well be called speculators, except 
that they can always command money or credit enough to 
pay for their stock in full if necessary—and the other class 
of speculators, who will take a loss if the market goes 
against them far enough.” 3 

Playing the Market on Margin 

Briefly the bona fide small investor is not a conspicuous 
figure in the stock market. He buys stocks, of course, and 
sells whenever the opportunity offers, at a profit. The 
important thing to remember is that the bona fide small 
investor pays the full market price for his stock. How¬ 
ever, all the purchases and sales, by and on behalf of small 
investors, in the aggregate are a bagatelle when compared 
with the marginal stock transactions. It has been said that 
90 percent of all stock transactions are of a speculative 
character. That is to say, options on large blocks of stock 
are bought on margin. The speculator “puts up” let us 
say, a ten-point margin—that is to say, ten percent of the 
value of the stock. If he sells before the ten points are ex¬ 
hausted he makes a profit. If, on the other hand, the market 
falls below ten points, and he is unable to put up another 
margin to protect his option, he loses. It is by this practice 
that “fortunes” are made and lost. 

The Principle Set Forth 

Let us try to understand the principle underlying 
gambling in stocks on margin. John Smith (let us call 
him)—may his tribe decrease!—let us say has a thousand 
dollars which he puts up as a ten-point margin in the 
month of January of a given calendar year, for an option 
on a ten thousand dollar block of stock. If the stock rises 
ten points within the next few days, and he sells at the 
right time, he disposes of the ten thousand dollar block of 
stock, in which he never had more than a tenth part inter- 


3 The Magazine of Wall Street, November 25, 1916. 



The Stock Market 


131 


est, at a clear profit of one thousand dollars—that is to say, 
he has doubled his one thousand dollars. 

If he repeats his transaction for twelve consecutive 
months—and let us, furthermore—in order to simplify the 
illustration of the principle involved—say that he never 
puts up more than a thousand dollars as margin, his reward 
at the end of twelve months will be as follows: 

Original “capital” $1000. Putting this up as a ten 
percent margin he will have “purchased” a ten percent 
equity in a $10,000 block of stock. Since we are assuming 
a monthly re-investment of the original $1000 he has pur¬ 
chased $120,000 worth of stock, although he never pos¬ 
sessed more than $1000 actual money, and made a total of 
$12,000 in the twelve months. 4 

What entitles John Smith to such a profit? Is it his 
shrewdness, his sagacity, his thrift, his economy, or is it his 
industry that is being rewarded? It is none of these. He 
simply had the ‘ ‘ courage ’ ’ to risk his $1000, make or lose ; 
he took a chance; he gambled. He is not entitled to any 
such reward. He has done absolutely nothing; he has con¬ 
tributed nothing to society, nothing to the welfare of the 
public. Why, then, should he be rewarded? Why indeed? 
He has not helped, nor given his service to the industry, or 
industries, in whose stocks he gambled. 

I need hardly waste any time in stating what is known 
to nearly everybody, that no mere uninitiated “investor” 
of the piker variety would ever be permitted so easily and 
so successfully to play the market. That is not the way the 
game is played. I merely want to illustrate the principle 
upon which the stock market is operated. 

Now let us assume a fall in the market, and consequently 
the ten-point margin would not be sufficient. Another ten 
percent margin will be necessary. To protect himself and 
his “investment” John Smith borrows from the bank or 
banker: that is to say, John Smith borrows your money and 
mine (our savings) with which to speculate in stocks. Bil- 

4 And if he were to pyramid his “winning's” he would make hun¬ 
dreds of thousands out of his original $1000. 



132 


The New Capitalism 


lions are borrowed every year for speculative purposes on 
the Stock Exchange. These loans to speculators are known 
as “call loans.” 

Thanks to the Capitalistic System of speculating on mar¬ 
gin, John Smith can make a fortune; though of course he 
also runs the risk of losing the money he has or has bor¬ 
rowed, and of going broke. The real winners, ultimately in 
the stock gambling game are the inner circle 5 composed of 
a few thousand men who manipulate the market and win 
whether it goes up or down. 


Business Is Not Directly Benefited 

This chapter is taking me further afield than I had in¬ 
tended to go. Certainly I had not intended to write at any 
length of stock transactions, operations, manipulations, etc. 
My purpose in writing this chapter was really to say that 
none of the stock transactions are for the benefit of business 
itself. Not any of the money won in the speculative stock 
market enters directly and ipso facto into the channels of 
productive industry. The transaction is between individ¬ 
uals—one buyer and one seller. Whatever money passes 
between them is from pocket to pocket; not from pocket to 
the corporation’s treasury. 

The Public Is Not Benefited 

Furthermore, all the stock transactions are not of the 
slightest benefit to the eighty million non-investors. The 
eighty million derive not a solitary advantage from all the 
stock sales; just the reverse, for I think I can put it down 
as an axiom that not a dollar of profit is ever made by any¬ 
one in the stock market or elsewhere but the profit comes 
from somewhere; and that “somewhere” is generally the 
non-investor’s pocket-book. In the end the non-investor 


5 I have been told by one who knows the game that the real inner 
circle is composed of only about 100 men—who constitute a syndicate. 



The Stock Market 


133 


group 6 must pay the total bill of all stock winnings. If the 
non-investor group does not pay, then tell me from what 
source the winnings in the stock market are derived. 

Why, some will say, ‘ 4 A certain number win and a certain 
number lose: just as in a poker game, a certain amount of 
money is put into the game by a certain number of players. 
At the end of the game the same amount of money is there 
—only it has changed hands.” Precisely! just as in a 
poker game! But sirs! there are no marginal transactions 
in a poker game; the players do not put up ten cents on 
the dollar; neither do they borrow from the players nor 
from the innocent bystander—not unless the rules have 
been changed recently. Nor do they expect the general 
public to make good their losses. 

Who Is Benefited ? 

If the winnings of the lucky ones in the stock market 
are not derived from the general public; if, as some will 
probably assert, the winnings of a certain number are the 
losses of a certain number—then every point I have scored 
in this chapter stands admitted. And the condemnation of 
the stock market is eminently fitting. A few of the four 
million “investors,” beyond a doubt, are greatly benefited 
by stock speculation, but neither business, nor the general 
public, is directly benefited. 

How One Billion Can Grow Into Billions 

Now let us assume for the present that a given num¬ 
ber of professional gamblers go into the stock market with 
a certain amount of money—let us say one billion dollars— 
and that this amount is both lost and won in the course of 
twelve months. Consequently it is still in the game at the 
end of the year, with this difference, that it has been placed 
to the credit of the winners on the books of banks; and the 

6 The bona fide small investor also helps to pay the bill. “Managers, 
when successful in operations on the Exchange, have pocketed the 
profits, but when unsuccessful, have thrown the loss on the stock¬ 
holders,” says Ernest Von Halle in “Trusts or Industrial Combinations 
in the United States.” 




134 


The New Capitalism 


losers have been eliminated from the game. So far so good! 
The following year this same amount of money will again 
be used by the winners; and let us say that they continue 
to win at the maximum rate. Here’s the principle: 

Within ten years there will have been credited to sundry 
persons winnings aggregating billions of dollars, although 
only one billion of money was actually entered in the game. 

Who can tell me how much actual cash is put into the 
stock gambling game in the course of a year ? Who can tell 
me how much credit (call loans) is employed therein ? Who 
can tell me how much is lost and how much is “made”? 
Who can tell me what proportion of the winnings each year 
is taken out of the game and placed to the credit of indi¬ 
viduals in banks? If I had these and a few other relevant 
data I should like to have, I could, by simple arithmetic, 
prove the damnable character of the stock market; and the 
mystery of inflated fortunes, and inflated bank accounts 
would dissolve into thin air. 

The Big Game Played in a Big Way 

The stock transactions on the New York Stock Exchange 
for the year 1920, was 223,084,035 shares. Computing each 
share at par value 7 the stock transactions for the year 1920 
involved $22,308,403,500. This covers only the stocks of 
those corporations listed on the New York Stock Exchange 
—about 1000. It does not include the transactions for the 
same group of stock on the exchanges of other cities, 8 or 
stocks traded on the New York Curb Market. It is esti¬ 
mated that the annual sales on the Curb average about 
60,000,000 shares; while those of the exchanges outside of 
New York aggregated about 35,000,000 shares in 1920. 

There is no way of arriving at definite figures as regards 
the amount of money actually involved in all stock transac¬ 
tions in the course of twelve months in the United States. 

7 The par value of most listed stocks is $100. Those whose par 
value is less than $100 are only a small percentage of the total. 

8 Boston, Philadelphia, Chicago, Baltimore, Pittsburgh, Washington, 
Detroit, Cleveland, Cincinnati, New Orleans, Los Angeles, and San 
Francisco. 



The Stock Market 


135 


In the first place, the New York Stock Exchange—the 
biggest business institution in the United States—certainly 
doing the greatest volume of business—keeps no books, i.e., 
officially; nor does it publish official reports or statements. 

Moreover the fluctuation in market quotations, the rise 
and fall of prices of stocks, make it difficult even to ap¬ 
proximate. However from the unofficial data that we have 
it is safe to say that in normal times from twenty-five to 
thirty-five billions of dollars change hands on the various 
stock Exchanges every year. 

And this is only for stocks. The bond transactions are 
comparatively small in volume. In 1920, for example, the 
bond sales on the New York Stock Exchange amounted to 
$3,955,036,400; whereas in 1918 they amounted to only 
about two billion. The reason for this is that bonds are of 
a less speculative character—and that cash, rather than 
margins, enter into their purchase and sale. 

Capitalistic Anachronisms 

Out of the welter of chicanery apparent in the specu¬ 
lative stock game, two things stand out clear and strong: 
First: the speculative investor is not a stockowner in any 
sense of the word. They merely hold an option on stock 
for a few days, weeks or months. They are mere transients, 
not permanent members of a company. They have no per¬ 
sonal or vital interest in the business itself; its manage¬ 
ment, its conduct, or its affairs. Their chief concern is in 
the “earning powder” as it is reflected in the market quo¬ 
tations. 

The average marginal speculative stockholder cannot be 
said to be an integral part of a corporation. Generally 
speaking I will say that a majority of the speculative stock¬ 
holders in a given corporation on January first of a cal¬ 
endar year, are not stockholders in said corporation at the 
end of the year, particularly if there is a decline in the 
market quotations. Here we have a condition that gives 
neither solidity nor responsibility to the existing corpora¬ 
tions. It means perpetual changing of ho/dership; it is 



136 


The New Capitalism 


erroneous to speak of ownership when there is none. The 
group of “speculative investors,” or temporary stock¬ 
holders, rotates. The speculative investor flits from flower 
to flower, tarrying longest where there is the most honey— 
the most likely prospect of a sightly profit from the pur¬ 
chase, or sale, of stock. The average speculative investor, 
or stock holder shifts from corporation to corporation—I 
will not say that he transfers his loyalty, for he has no 
loyalty—sticking to one or the other as long as all’s well— 
and deserting it as soon as difficulties arise or adversity sets 
in. The average speculative marginal investor is a coward 
—an adept at scuttling a ship. 

The second anachronism is that hundreds of corporations 
are sold over and over in the course of every twelve months. 
This is particularly true of the corporations whose stocks 
are listed on the New York Stock Exchange. Let me 
give you just one illustration. The United States Steel 
Corporation has outstanding $360,281,100 preferred stock, 
and $508,302,500 common stock—consequently a total of 
$868,583,600. During the year 1920 the sales of the LTnited 
States Steel Corporation stock on the New York Stock 
Exchange alone, amounted to 13,585,300 shares of the com¬ 
mon stock and 224,200 preferred. Since the par value of 
the United States Steel Corporation stock is $100, the stock 
transactions involved $1,380,950,000, which is an amount 
considerably greater than its outstanding issue. 

The Case Clearly Stated 

The following excerpts from the speech of Hon. Albert 
B. Cummins, in the Senate, Monday, September 1, 1913, on 
a bill to reduce tariff duties and provide revenue for the 
Government and for other purposes, are worth reading, in 
that they are the utterances of a man considered an author¬ 
ity on the subject. Said Senator Cummins: 

“I take, as an illustration, the year 1912. The dealings 
upon the exchange were less that ^year than the year before, 
and therefore it is entirely fair to take the year 1912. 

“In that year there were sold upon the exchange in 


The Stock Market 


137 


New lork, bonds—and I am giving the bonds simply for 
the purpose of instituting a comparison—amounting in the 
aggregate to $653,497,000. I want Senators to remember 
the small, meager amount of bonds sold upon the New York 
Stock Exchange when I come to state the amount of stock 
sold in the same market during the same time. 

“In the year 1912 there were sold on the exchange in 
New York, 63,704,779 shares of railway stocks alone. The 
par value of the stock so sold was $5,052,823,900. Of in¬ 
dustrial and miscellaneous stocks there were sold upon the 
exchange, in the year, 72,413,946 shares of the par value of 
$6,150,899,600. Of all stocks there were sold 136,118,725 
shares, with an aggregate par value of $11,203,723,500. 

“I pause here to point out the fact that the aggregate 
value of the railroad stocks sold or pretended to be sold 
during that year upon the exchange, amounted to about 
four-fifths, or certainly more than three-fourths of all the 
railroad stocks of the United States. All the railroad 
stocks are not listed upon the New York Exchange; but the 
aggregate stocks, common as well as preferred, of all the 
railway companies of this country, does not greatly exceed 
$7,500,000,000. I state it in round numbers. Of the stocks 
listed upon the New York Stock Exchange there were sold 
during that year $5,052,823,900. 

‘‘It goes without saying that 90 percent of these sales 
were purely speculative. Certainly not more than 10 per¬ 
cent of the stocks of the railroad companies of this country 
actually changed hands during the year 1912, and yet three- 
fourths of those stocks were nominally sold upon the New 
York Exchange alone . 

“We might as w T ell face the question whether we intend 
to enter upon a campaign against selling short in this 
country. I believe it is as serious a menace to industrial 
stability and financial strength as is now before the Amer¬ 
ican people. Some time we must take up in earnest the 
problem of suppressing these gigantic gambling transac¬ 
tions, and I think this is the time to do it. My amendment 
demands that we do it now. . . . 



138 


The New Capitalism 


“There are a great many people who believe that the 
short sale— that is, the sale of a commodity or a product or 
a stock by a man who does not own it, but who expects to 
go into the market when the time for delivery comes and 
either settle upon the market price as it then is or buy at 
the market price the thing he has sold, in order to make 
delivery—is a valuable element in the business of the 
United States. It has been so argued for a long, long time. 
I do not think so. It is said that short sales are necessary 
to create a market for things that people actually want to 
sell, and in order to insure a condition which will enable a 
man to sell anything, the moment he wants to sell it, at the 
market price. I do not think so. When one has a thing 
that somebody else wants to buy, there will always be an 
opportunity for the seller and the buyer to meet. . . . 

“But as it is now, it is not a place for the transfer of 
actual shares. It is a place where bold and experienced 
men balance their wits. It is a place in which men of great 
mental capacity and audacity as well, fight for supremacy, 
employing, not alone the means which ought to influence 
the price of stocks, but every means which may tend to 
affect the market. . . . 

With Regard to Railroads 

“In 1912 the Atchison, Topeka & Santa Fe Railroad Co. 
had listed on the New York Stock Exchange its common 
stock. It amounted to $168,430,500. At the end of the 
year, as we are assured by those who know something of 
the subject, practically the same persons owned the stock 
who owned it at the beginning of the year; and yet during 
the course of the year the stock of this company to the 
amount of $129,319,700 was sold and bought upon the New 
York Stock Exchange alone. . . . 

“The Chicago, Milwaukee & St. Paul Railroad Company’s 
. . . entire common stock amounted to $116,348,200; 

but during this year there were sold and bought on the 
New York Stock Exchange stock of this company to the 
amount of $149,277,200. At the end of the year practically 


The Stock Market 


139 


the same persons owned the stock that owned it at the 
beginning of the year; and the fluctuations in the market 
price, steady and permanent as it ought to be, ran from 
117% to 99%. 

‘ ‘ How many fortunes were wrecked in that fluctuation it 
is impossible for me to say. There was no material differ¬ 
ence in the actual value of the stock during that year. It 
was just as certain to pay dividends at one time as at 
another. The future of the country remained the same. 
The business at its command continued without great 
change or variation. Yet during the course of the year, up 
and down, under the influence of these speculators who 
sought nothing else than their own advancement, and their 
owm profit, this stock varied from 117% to 99%. 

“Again, the Erie Railroad Co. had outstanding that year 
$112,378,900 of stock, but there were sold on this exchange 
shares aggregating $245,033,100—almost two and a half 
times in the one year the aggregate value of all the stock 
of the company. 

“The Canadian Pacific, another company which is en¬ 
gaged in legitimate railroad business, whose earnings do not 
change very greatly, had listed upon this stock exchange 
stock of the aggregate value of $180,000,000. During the 
year there were traded in shares of the value of $159,- 
693,800, and the market price of the stock ranged from 
226, the low point, to 283, the high point, without any 
reason whatsoever for the fluctuation. 

“The Great Northern, another rather steady property 
when it escapes from the hands of those who desire to 
manipulate its fortunes for their private interest, had listed 
$209,981,875 of stock: and there passed back and forth, in 
this fictitious and unreal way which is known in no other 
business in the world except that which is done upon such 
an exchange, shares of the value of $119,236,700. 

“The Lehigh Valley is a road that has seemed to be the 
favorite of these speculators in New York, although it is a 
railroad doing a most legitimate business and supplying a 
service that must continue without essential change. Its 


140 


The New Capitalism 


stock amounted to $60,501,700, yet men pretended to buy 
and sell upon the exchange during this year, $175,625,000, 
and its market price ranged from 155% to 185%. 

“The Missouri Pacific had $83,251,085 of stock. Some¬ 
body bought and sold on the exchange $113,320,800 of it 
without any real change of ownership, and it fluctuated 
from 35, the low point, to 47%, the high point. 

“The Northern Pacific, with $248,000,000 of stock, saw 
its shares bought and sold to the extent of $151,551,800. 

“The Reading, another of these great composite rail¬ 
roads, well established, doing a business which must con¬ 
tinue so long as the people of this country do any business 
at all—and I beg, now, that Senators will especially remem¬ 
ber this—had a capital stock of $70,000,000. Yet these peo¬ 
ple in New York, for themselves or for these blind and 
inexperienced men who seek to find a fortune where for¬ 
tunes are not to be found, sold, and somebody bought. 
$1,114,468,250 of its stock. In other words, all its capital 
stock was bought and sold more than fifteen times during 
the course of the year. 

“The Southern Pacific had stock to the amount of 
$272,672,405, and of its stock there was sold during the 
year $129,139,400. 

“Of the common stock of the Union Pacific there was 
outstanding $216,627,800. There was bought and sold dur¬ 
ing that year $1,062,600,000, and the range of market value 
was from 150% to 176%. 

“The speculators, of course, like stocks that are easily 
depressed and easily increased in price. 

And Here Are a Few Industrials 

1 ‘ But I now turn to another kind -of stock. I call them 
industrial or miscellaneous stocks. The first one that I 
mention is Amalgamated Copper; known to every man who 
has any interest in what takes place among the great specu¬ 
lators of the country. Its stock amounts to $153,887,930. 
It was traded in during 1912 to the extent of $812,869,500. 
I doubt exceedingly whether at the close of the year there 


The Stock Market 


141 


was any substantial difference in the ownership of the 
stock as compared with the beginning of the year. The 
lowest price was 60, the highest price 92%, a range of 32% 
per cent, or one-third of the par value of the shares them¬ 
selves. 

‘ ‘ The American Beet Sugar Co., of which w^e have heard 
a great deal in recent years, had a common capital stock to 
the value of $15,000,000. There were sold and bought on 
this exchange during the year shares of this company to 
the aggregate value of $108,612,400, more than seven times 
the entire amount that had been issued by the company. 

“The American Can Co., another company out of which 
great fortunes have come, had stock of the par value of 
$41,233,300, and yet there were sold on the exchange dur¬ 
ing the year shares amounting to $379,658,300, quite nine 
times the value of all the stock then outstanding. 

“The Stock of the American Smelting and Refining Co., 
another institution which has been utilized for winning 
great fortunes, was $65,000,000, and of that $15,000,000 
had been withdrawn and deposited to secure certain bonds, 
and therefore really it had outstanding but $50,000,000. 
Yet the trading in this stock amounted during the year to 
$227,741,000. Its low point was 66%, its high point 91. 

“The General Electric Co. had $77,325,200 of stock. The 
trading amounted to $50,551,000. 

“The United States Steel Corporation, the greatest in¬ 
dustrial organization of the time, or of any other time irf 
this or any other country, had outstanding common stock 
of the par value of $508,302,500, and yet somebody sold 
and somebody bought during the course of the 3^ear, shares 
of this stock amounting to $2,462,622,400. The low point 
was 58%, the high point 80%. ” 

The Capitalistic Corollary 

Why, and for whose benefit, are these stocks bought and 
sold year after year? The non-investors, i. e., the public, 
derives no benefit whatever. Are the industries benefited 
thereby, or onlv a certain number of individuals within the 

«/ 7 


142 


The New Capitalism 


so-called “investor” group? The answer is obvious. Tre¬ 
mendous as are the profits derived by the chief owners of 
the big corporations, whether from operation of railroads 
or public utilities, etc., or from the manufacture and sale 
of industrial products, the profits they derive from their 
stock transactions and manipulations (to say nothing of 
interest, dividends, and commissions) are probably greater. 

There are many other things besides stocks in which the 
gambler speculates—scores of staple commodities, wheat, 
corn, rye, barley, oats, petroleum, cotton, butter, eggs, etc., 
and various kinds of produce. Besides real estate, the re¬ 
peated buying and selling of which (and a sightly profit on 
each “turn over” to the speculator) has given us inflated 
“values” and higher rents. The same principle that gov¬ 
erns the stock market controls the speculative market what¬ 
ever the commodities may be. The marginal speculator 
takes his profit (needless to say there are also sometimes 
losses) or inflated returns, out of the price fluctuations, 
while the consumer, i. e., the public, pays the bill. 

The Period to This Chapter 

What prostitution is to society, that is what the stock 
market is to legitimate business—with this difference—that 
houses of prostitution were once tolerated as the less of 
two evils—whereas the stock market, in spite of its flagrant 
immoralities, boasts of being an institution upon which the 
salvation of the nation depends. 

Society has never accepted prostitution as an honorable 
business; nor have those practising the profession ever 
sought to paint the halo of holiness around their transac¬ 
tions. But Capital has forced society to accept the stock 
market as if it were an honorable and sacred institution; 
besides placing at the disposal of those who ply their ne¬ 
farious trade within its purlieus, the nation’s financial 
resources—that is to say, the people’s money—the savings 
of the non-investors. 


CHAPTER XIII 

Our National Wealth 


P ROFESSOR WALKER in his “Political Economy” 
says: “Economists have found much difficulty in de¬ 
fining wealth; and not a few writers, especially of 
late, have chosen to abandon the word altogether.” 

Notwithstanding Professor Walker’s statement that not 
a few writers have abandoned the word wealth, our eco¬ 
nomic literature has become cluttered with more or less 
erudite definitions of, and elaborate treatises on wealth, its 
nature, distribution, etc. These various definitions and 
treatises are often in conflict with each other, for the rea¬ 
son that the writers are not in agreement with regard to 
the fundamentals involved. 

The Best Definition of “Wealth” 

While it may be difficult for Capitalistic economists to 
arrive at a crystallized definition of wealth, the man in 
the street finds it less puzzling to determine what wealth 
is when applied to himself. He takes an invetory of all he 
owns and owes, and the difference between the two is his 
wealth. Therefore, wealth, in the popular mind, is some¬ 
thing measureable, something computable, something that 
can be reduced to figures. The average man may not be 
able to give a scientific definition of the word wealth, but 
most of us do not find it at all difficult to compute how 
much or how little of it we have. 

The very best definition of wealth I have ever heard—the 
simplest and, I will add, the most scientific definition, came 
from the lips of an expert accountant. “Wealth,” he said, 
“is the difference between assets and liabilities.” It is this 
definition that will guide me in the writing of this chapter. 


143 


144 


The New Capitalism 


Statistics on the Wealth of the United States 

What is the wealth of the United States today? The 
Census Bureau has published no official estimate nor sta¬ 
tistics since 1912. Nevertheless, in 1917, after our entrance 
into the war, the then Secretary of the Treasury, William 
G. McAdoo, said our national wealth was 255 billions. 1 
The latest estimate for 1920 is 288 billion. It goes without 
saying that both of these estimates are pure guess work, 
and probably grossly exaggerated. But for the present we 
will accept them for what they are worth. With the esti¬ 
mates for 1917 and 1920, added to those for 1900, 1904 
and 1912, published in the 1921 United States Census Re¬ 
port, we can at least get an approximate idea, if not of the 
actual wealth at least of the supposed growth of wealth in 
the United States: 


1900.$88,517,306,775 

1904.107,104,211,917 

1912.187,739,071,090 

1917.255,000,000,000 

1920.288,464,000,000 2 


Growth of the National Wealth 

Carlyle has said somewhere: “A judicious man looks at 
statistics not to get knowledge, but to save himself from 
having ignorance foisted on him.” In this spirit let us 
examine the statistics with regard to the increase in our 
national wealth. 

During the century from 1800 up to the year 1900 the 
wealth of the United States grew to 88 billion dollars; or 
at an average rate of about 880 million dollars a year. 

From 1900 to 1920 our wealth, according to the statistics 
before us, grew from 88 billion dollars to 288 billion dollars 
—an increase of approximately 200 billion dollars within 

1 In 1912 when our National Wealth was declared to be 187 billion, 
the assessment valuation was sixty-nine and a half billion. In 1917 
the National ’Wealth was estimated by Mr. McAdoo at 255 billion; 
the assessment valuation was only 88 billion. 

2 The Journal of Finance and Commerce in Mav, 1920, said the 
National 'Wealth was 500 billion, an absurdity on the face of it. 








Our National Wealth 


145 


twenty years, or at the rate of about 10 billion a year. 

How is it possible for the wealth of a nation to increase 
so suddenly, so rapidly, so tremendously ? There is but one 
answer. It isn’t possible, and it didn’t happen! No such 
growth in wealth could have been brought about by any 
known process of healthy development; no such tremendous 
yearly increase could have been produced by legitimate 
means. 


One Hundred Billion—Sheer Inflation 

What, then, is the explanation! The explanation is 
simple enough. You will please observe that the tremen¬ 
dous increase in our national wealth began approximately 
in 1900, i. e., the same year that overcapitalization began 
to assume gigantic proportions. Much of the increased vol¬ 
ume of the “wealth” which the nation is supposed to pos¬ 
sess, is sheer inflation. There are no commensurate assets. 
The tremendous increase is for the most part fanciful; the' 
colossal increment in wealth is fictitious. If I were asked 
to make a guess as to the probable amount of our national 
wealth I would say that it does not exceed 188 billion. But 
I consider even that amount too high, for I do not believe 
that our average yearly legitimate increase since 1900 was 
at the average rate of five billion a year. But judge for 
yourself. 

According to the United States Census (Statistical Ab¬ 
stract, 1921) the national wealth in 1880 was $43,642,- 
000,000, and in 1890 it was $65,037,000,000—an average 
increase of $2,139,500,000 a year. By 1895 the national 
wealth had risen to $77,000,000,000, an average increase of 
$2,400,000,000 a year. By 1900 it had mounted to $88,- 
517,000,000, which was at the rate of about $2,750,000,000 
a year. From 1900 to 1904 the increase was at the rate of 
about $4,600,000,000; from 1904 to 1912 at the tremendous 
rate of about ten billion a year; and from 1912 to 1920 at 
the rate of about twelve and a half billion a year. 

To admit, therefore, a possible yearly increase of five 
billion dollars during the past twenty years—a total of 100 



146 


The New Capitalism 


“National Wealth” Statistics from the U. S. Census 
Statistical Abstract, 1921 

National Wealth; Estimated under Specified Heads in 1900, 

1904 and 1912 

(Source: Reports of the Bureau of Census, Department of Commerce) 


Form of wealth 


Gold and silver coin 

and bullion . 

Manufacturing mach’y 

tools, etc. 

Railroads and their 
equipments . 

Total 

Street Railways, Etc.: 

Street Railways . 

Telegraph Systems . . . 
Telephone Systems . . 
Pullman & private cars 
Shipping and Canals. . 
Irrigation Enterprises. 
Privately owned 

waterworks . 

Privately owned central 
electric light and 
power stations . 

Total 
All Other: 


Clothing and personal 

Ornaments. 

Furniture, carriages, 
etc. 

Total 

Grand total 


1900 

Dollars 

46,324,839,234 
6,212,788,930 
3,306,473,278 
' 749,775,970 

1904 

Dollars 

55,510,247,564 

6,831,244,570 

4,073,791,736 

844,989,863 

1912 

Dollars 

98,362,813,569 

12,313,519,502 

6,238,388,985 

1,368,224,548 

1,677,379,825 

1,998,603,303 

2,616,642,734 

2,541,046,639 

3,297,754,180 

6,091,451,274 

9,035,732,000 

11,244,752,000 

16,148,532,502 

69,848,035,876 

83,801,383,216 

143,139,573,144 

1,576,197,160 
211,650,000 
400,324,000 
i 98,836,600 

537,849,478 

2,219,966,000 

227,400,000 

585,840,000 

123,000,000 

846,489,804 

4,596,563,292 

223,252,516 

1,081,433,227 

123,362,701 

1,491,117,193 

360,865,270 

290,000,000 

267,752,468 

275,000,000 

402,618,653 

562,851,105 

2,098,613,122 

3,495,228,359 

4,840,546,909 

10,265,207,321 

1,455,069,323 
i 6,087,151,108 
424,970,592 
326,851,517 

1,899,379,652 

7,409,291,668 

495,543,685 

408,066,787 

• 5,240,019,651 
14,693,861,489 
826,632,467 
815,552,233 

2,000,000,000 

2,500,000,000 

4,295,008,593 

4,880,000,000 

5,750,000,000 

8,463,216,222 

15,174,042,540 

18,462,281,792 

34,334,290,655 

88,517,306,775 

107,104,211,917 

187,739,071,090 


* Including live stock on farms and ranges and in cities and towns. 
























Our National Wealth 


147 


billion, is certainly liberal. Therefore I consider my esti¬ 
mate that onr national wealth does not exceed 188 billion 
as extremely fair. In brief, I maintain that since 1900 over 
100 billion dollars of fictitious ‘‘wealth” has been included 
in all statistics pertaining to our “National Wealth.” 

If I am correct in saying that the national wealth is 100 
billion inflation, then the general public is paying about 
$6,000,000,000 a year interest on this inflated, non-exist¬ 
ing wealth. If I am correct in saying that the inflation in 
our national wealth is 100 billion, then the Capitalistic 
System has placed a debt of $5,000 upon every family, the 
annual interest on which amounts to $300 per family. 

There will be those, of course, who will challenge my 
statement that 100 billion dollars of our statistical national 
wealth is sheer inflation. They will say that I am in error. 
Let them prove it! They cannot deny that there is con¬ 
siderable inflation. If they accuse me of exaggeration as 
regards the amount of inflation I wish to say that I shall 
gladly revise my estimates on condition that they will fur¬ 
nish me with complete and absolutely correct data showing 
contrary conditions. Until the proof of my error is forth¬ 
coming, my guess and estimate must stand. My guesses and 
my estimates are fully as valuable as the guesses and esti¬ 
mates of any other writer on economic subjects. 

However, for the purpose of this chapter I am willing to 
accept the official statistics for our “National Wealth,” 
just as they are, without making any deduction for infla¬ 
tion. But I will ask you to remember the expert account¬ 
ant’s definition of wealth, viz., “the difference between as¬ 
sets and liabilities.” 

The National Assets 

What do the statistics or estimates (see opposite page) 
of our national wealth cover? Wealth or assets? I hold 
that they cover assets only. As proof I single out the item 
“Railroads.” In 1912 the wealth of the “railroads and 
their equipment” is given as $16,148,532,502. But where 


148 


The New Capitalism 


do we find mention of the liabilities of the railroads? The 
railroad properties are bonded (i. e., mortgaged) for over 
ten billion, which means that the railroad properties are 
hypothecated for approximately two-thirds of their esti¬ 
mated value. 

Thus I could take item for item and show that the sta¬ 
tistics for our national wealth are, to put it mildly, irrele¬ 
vant and misleading. I ask every business man who reads 
this chapter whether in all his life he has ever seen a trial 
balance in which only assets are given, and no mention 
whatever is made of liabilities. What would he think of 
an accountant who made a glowing report of the wealth 
represented by his assets, without saying at least something 
of the debts that must be paid—the liabilities. 

The National Liabilities 

I have no intention of pursuing this phase of the subject 
to the bitter end. To do so in any worth-while fashion 
would require a considerable amount of space. But merely 
to indicate the possibilities let me ask: What are the Na¬ 
tional Liabilities? For surely you will not deny that there 
are liabilities. Look over the trial balance of any corpora¬ 
tion and you will see that there are liabilities scheduled 
which cut rather alarmingly into the assets. (While on 
this subject, and merely in passing, I have always won¬ 
dered why “Capital Stock”—Which is presumably the 
amount of capital a given number of persons constituting 
a corporation ‘ ‘ invested ’ ’ for the acquisition of their assets , 
such as land, buildings, machinery, equipment, etc.—should 
also be their liability. A contradiction is involved here. 
But let us return to our subject.) 

The national assets in 1920 amounted presumably to 288 
billion. Remember that; then read the following: 

“Debts of the Government, of states, cities, counties, 
school districts, improvement districts, transportation cor¬ 
porations, all industrial corporations, private mortgages 
and bank loans, amount to more than $150,000,000,000, 


Our National Wealth 149 


approximately $1,500 for every man, woman and child in 
the United States. Figures by Richardson. ” z 

The Trial Balance 

“Wealth is the difference between assets and liabilities,’’ 
said the expert accountant. Which being the case we ar¬ 
rive at the conclusion that the national wealth is only 
$138,000,000,000. Here are the figures: 

National Assets .$288,000,000,000 

National Liabilities . 150,000,000,000 


National Wealth.$138,000,000,000 

The Public Pays the Interest and Principal 

It is of tremendous importance to keep the liabilities 
in mind, for, according to the Capitalistic logic the non¬ 
investors will have to pay the interest as well as liquidate 
the principal of the entire debt. The national liabilities 
are estimated as 150 billion. This means that the public 
is paying not less than six percent, or a total of 9 billion 
dollars a year interest on this debt. And if the practice of 
setting up a sinking fund to ultimately cancel the principal 
of the debt is general, then the public is paying consider- 
ably more than 9 billion a vear. I do not know within 
what period of time this liability will be liquidated; some 
note and bond issues run to A. D. 1956, and some even be¬ 
yond that year. But let us assume that the liabilities will 
not be increased; and that the entire debt (liabilities) will 
be paid off promptly at the end of twenty years. 3 4 In that 
case the public will have paid as interest, 180 billion dol¬ 
lars; and by way of liquidating the principle of the debt 
150 billion dollars; or a total of 330 billion dollars. 

3 Frederick R. Burch in The Dearborn Independent, Jan. 28, 1922. 

4 It is an absolute certainty that twenty years hence the National 
liability will be considerably greater than 150 billion. I have already 
shown that maturing - securities are not “retired”: on the contrary, 
they are being perpetuated. We have seen that for every dollar of 
maturing securities, nine dollars of new securities are issued. Conse¬ 
quently when I “assume” the cancellation of the 150 billion national 
liabilities at the end of twenty years, I’m dealing in a pure hypothesis. 







150 


The New Capitalism 


Putting the case into the simplest form, the national 
liabilities, amounting at present to 150 billion dollars, 
means that a debt of $7,500 has been placed on every fam¬ 
ily, and the interest alone on which amounts to at least 
$450 per family. 

Getting to the Point 

But let me return to the point of my subject—the Na¬ 
tional Wealth. “Wealth is the difference between assets 
and liabilities. ” If a piece of property valued at ten thou¬ 
sand dollars, and of which I am presumably the owner, is 
mortgaged for $8000, what is the amount of my wealth? 
Answer: $2000! Correct! 

But, you will say: Nevertheless there is $10,000 worth 
of property in existence. Quite true! but it isn’t mine; I 
have no title to it; it is encumbered—there are notes and 
mortgages amounting to $8000 against it, on which I am 
compelled to pay interest. My equity is $2000. Those to 
whom I owe $8000—those who hold the notes and mort¬ 
gages, have the other $8000. They—not I—own the wealth 
I am supposed to have. 

Now we are getting into the very heart of our subject, 
and I am going to make a statement of tremendous fact; 
a statement that is incontrovertible; a statement susceptible 
of proof; a statement based upon examination and analysis 
of an overwhelming amount of evidence; a statement of 
staggering portent to all the people of the United States— 
particularly to the wage-earners, the small salaried men 
and women—the non-investors—the public. 

The “National Wealth” is mortgaged to the limit, and 
the few hundred, or thousand, constituting the Capitalistic- 
Mammonistic group—four hundred or four thousand indi¬ 
viduals, families or estates—(make it forty thousand, or 
four hundred thousand) hold the mortgages. The major 
portion of the national assets—the valuable, profitable, pro¬ 
ductive properties, and natural resources, are virtually 
owned by these few thousand. What they do not own out¬ 
right they dominatingly control. Not content with a rea- 



Our National Wealth 


151 


sonable profit from their wealth, they hit upon the plan of 
creating a tremendous liability against same, through the 
instrumentality of note and bond issues. I do not pretend 
to know what portion of the tremendous note and bond 
issues, aggregating tens and tens of billions, are in the 
hands of the “investor public”; what portion is held by the 
few thousand constituting the Capitalistic-Mammonistic 
group. It would be interesting if this information could 
be obtained. And it would be still more illuminating if we 
had definite data as to the amount of the notes and bonds 
originally purchased, let us say, by the “investor public,” 
that found their way into the banks and are held by them 
as collateral. In the final summing up, I think, it would 
be found that the major portion of national assets and 
liabilities are concentrated in the hands of a few thousand 
—make it four hundred, or four thousand, or forty thou¬ 
sand, or four hundred thousand, if you like. (And I have 
not said one word as yet, nor will I particularly dwell on it 
now, of the immense profits made by a few from the flota¬ 
tion of securities issues of all kinds, their underwriting, 
commissions, etc.) The point I wish particularly to em¬ 
phasize here is that the public—the wage-earners, the non¬ 
investors, are paying interest both on the assets and the 
liabilities—into the hands of the Capitalistic group. Not 
only that but the public—the wage earners, the non-inves¬ 
tors, will ultimately have to pay the principal of the debt 
-—i. e. liquidate the liabilities. But I have already made 
this clear to all those who are not purblind. 

A Word to the Dust Throwers 

I realize, perhaps better than most of my readers, since 
I have lived longer with my subject, the danger of gener¬ 
alizations. For this reason let me emphasize that I am not 
overlooking the fact that in the national liabilities are in¬ 
cluded items which, properly speaking, are not issued by 
the Capitalistic group—for example, federal, state, and 
municipal bonds. But it will not be denied that the non¬ 
investor portion of the public pays the greater part of the 



152 


Tlie New Capitalism 


interest; and ultimately also the principal of these national 
(or public) debts. Ill waste no time in insisting that the 
public pays practically all taxes. It is admitted that busi¬ 
ness does not pay the federal income tax; business merely 
advances the tax; ultimately it is collected from the public, 
the major portion of the amount involved being paid by 
that large contingent whose income is small—the wage 
earners and salaried men and women, the non-investors, 
and the bona fide small investors. 

Let There Be Light 

Note that I have added the bona fide small investors. I 
have done this purposely: First, because it is a fact; and 
secondly, because the Capitalistic group has impressed 
those who never think, that a very large number of small 
investors share in the emoluments of the Capitalistic Sys¬ 
tem. “If Big Business is in a conspiracy,” said Mr. 
Schwab, ‘ * quite a few people are involved in it. ’ ’ 

How many bona fide small investors are there? I have 
estimated their number at a million and a half. (You may 
increase their number if you have access to statistics that 
justify an increase.) What are the average holdings of the 
average small investor? Who knows? I don’t! Let us 
make a guess. Let us say that the par value of the hold¬ 
ings of the average bona fide small, non-speculative investor 
in securities of corporations, is $1000. In that case their 
combined holdings would total $1,500,000,000—and their 
combined income, computed at six percent on their invest¬ 
ment would aggregate $90,000,000, which is certainly a 
trifling portion of the total Capitalistic income. 

But let us not be too conservative in our computations. 
Let us say that their average holdings are $5000. In that 
case their combined holdings would total $7,500,000,000, 
and their combined yearly income $450,000,000, which is 
still a small percentage of the aggregate amount involved. 

Further along in this work of mine I shall revert to the 
bona fide small investor in corporate securities, and show 


Our National Wealth 


153 


that he is not a beneficiary of the Capitalistic System; in¬ 
deed he is penalized to the same extent as the non-investor. 

Let the Authorities Speak for Us 

But whatever contentions those favorably disposed 
toward the present Capitalistic System may raise to mini¬ 
mize the evil inherent in the System; whatever tactics they 
may pursue to throw the student off the track; however 
they may labor to controvert my statements—there is one 
thing they cannot deny, and that is that the corporate 
wealth of the nation, whatever its amount may be, is con¬ 
centrated in the hands of a few hundred or thousand—four 
hundred, or four thousand, or forty thousand, or four hun¬ 
dred thousand, or four million—as you choose! 

About one hundred and forty-seven years ago Adam 
Smith wrote a book, which he called “The Wealth of Na¬ 
tions.” But the wealth of a nation, is invariably owned by 
a comparatively small number of families or persons within 
a nation. That is true of all nations; it is particularly true 
of the United States. In 1890 the aggregate wealth of the 
United States was $65,000,000,000. According to an emi¬ 
nent economist and statistician of that time, Dr. Charles B. 
Spahr, this wealth was distributed among the then twelve 
and one-half million families as follows: 


Aggregate Average 

Families Wealth Wealth 

125,000 $33,000,000,000 $264,000 

1,375,000 23,000,000,000 16,000 

5,500,000 8,000,000,000 1,500 

5,500,000 800,000.000 150 


12,500,000 $65,000,000,000 $5,260 s 


That, approximately, was the distribution a generation 
ago. Today a third of a century later, there are 22 million 
families, less than 100 percent increase; and the aggre- 

B These figures beautifully illustrate the absurdity of the “average 
wealth per family” so generously apportioned by statisticians. In 
the above statistics by Dr. Spahr the average wealth of five and a half 
million families is $150 per family; and the average wealth of another 
five and a half million families is $1500 per family. But lo! to each 
of these 11 million families the statistics allot $5200 of wealth. 






154 


The New Capitalism 


gate wealth is said to be $288,000,000,000, an increase of 
343 percent. Thirty-three years ago Dr. Charles B. Spahr 
computed that seven-eights of the families in the United 
States held but one-eighth of the national wealth, while one 
percent of the families held more than the remaining 99 
percent. 

In 1918 Professor E. A. Ross declared that: ‘‘Two per¬ 
cent compose the rich and very rich, who own about one 
and one-half times as much as the other 98 percent to¬ 
gether. ’ ’ 

According to the latest statistics, compiled by Henry H. 
Klein, First Deputy Commissioner of Accounts of the City 
of New York, and published in his book “Dynastic Amer¬ 
ica’ ’ (1921), even less than one percent of the families 
own one-half of the country’s wealth. According to Mr. 
Klein, one family (John D. Rockefeller’s) owns approxi¬ 
mately one percent of the country’s wealth, or $2,400,- 
000,000; over forty families have wealth in excess of 
$100,000,000; more than one hundred other families, in 
excess of 50 million dollars each; more than three hun¬ 
dred other families, in excess of 20 million dollars each. 
In addition to these Mr. Klein gives a list of sixty-five fami¬ 
lies whose wealth is between 10 and 20 million, and sixty- 
five whose wealth is between 5 and 10 million. “The list 
of those who died in the present generation leaving between 
one and five million is too long to print, ’ ’ says the author 
of “Dynastic America.” “It contains several thousand 
names. ’ ’° 


Mammonism—The National Menace 

Professor E. R. A. Seligman, head of the Department 
of Economics of Columbia University, recently defined 
Capitalism as “that form of industrial organization where 
the means of production and by that I mean primarily un¬ 
der modern technological conditions—the machine, and the 


6 1 happen to know that Mr. Klein has taken great pains to 
gather the data for his statistics, and for this reason consider his com¬ 
pilations of great value in a study of our national wealth. 




Our National Wealth 


155 


funds required to work the machine, are in the control of 
private individuals.” 7 

That is a very good definition for Capitalism; but the 
point I raise is that the character of Capitalism has changed 
completely during the past twenty years and no longer de¬ 
serves to be called Capitalism, but by its new name, 
MAMMONISM. Therefore, adapting Professor Seligman’s 
definition to the altered conditions, we may say that Capi¬ 
talistic Mammonism is that form of industrial organization 
where the means of production—the machine—and the 
funds required to work the machine, are concentrated in 
the hands of a very small number—a few thousand indi¬ 
viduals, families or estates, and into whose coffers most of 
the profits flow. 

The Capitalistic Sport of Knocking Down 

Straiv Men 

A number of the Capitalistic apologists, for reasons not 
difficult to understand, have recently put forth arguments 
and statistics calculated to show that a greater distribution 
of wealth, or a more equable division of the profits, would 
be of little benefit to the workers or the public in general. 

An article 8 by George E. Roberts (Vice President of the 
National City Bank of New York), entitled “If We Divided 
All the Money—How Much Do You Think You Would 
Get?” emphasizes that if all the wealth in this country 
were divided among the people, each would receive only a 
small sum—a negligible amount hardly worth while both¬ 
ering about. Mr. Roberts, referring to Professor Willford 
Isbell King’s book, “Wealth and Income of the People of 
the United States,” says: 

“Professor King found that if all the profits which now 
go to pay interest and dividends were to be divided among 
all the wage earners, the result gained to the wage earners 
could not be more than 25 percent of their present income 

7 Debate between Professor E. R. A. Seligman and Professor Scott 
Nearing, Lexington Theatre, New York City, January 23, 1921. 

8 Originally published in the American Magazine and reprinted in 
pamphlet form, 1920. 



156 


The New Capitalism 


from wages. Of course, if the wage earner owned his home, 
or had any other investment, the loss on this might wipe 
out the gain in the salary or wages.” 

Mr. Roberts furthermore tells us that Professor David 
Friday, who also “has made a similar study of incomes 
. . . found that the average wage in the chief industries 
in 1918 was about $1320 a year. 8 9 . . . and that if all 
interest and dividend payments, that is, the amount realized 
from the use of capital employed in carrying on the same 
industries, the average wage would be increased only about 
$330 a year.” 

Mr. Roberts a little later approaches the subject from a 
slightly different angle, and shows, or attempts to show, 
that if the big salaries paid to officials and managers were 
divided among the workers, it would be only a trifling sum 
for the workers. In the case of the Bell Telephone system 
such a division, we are told, would have raised the average 
pay of the workers only 17 cents a week, or $9.00 a year. 

Why this kind of figuring; what prompts it if not a burn¬ 
ing desire on the part of the conspicuous members of the 
Capitalistic group to throw dust into the eyes of the public 
—that dear public which they violently protest they love so 
much, and of which they are always so considerate? Who 
is clamoring for an equal division, either of wealth or of 
profits? Certainly not I; nor any considerable part of the 
people. There may be in the United States a few hundred 
thousand extremists who are clamoring for an equal divi¬ 
sion of the country’s wealth, properties, and its earnings; 
but there are, in round numbers, fully one hundred million 
people who are not crying for the moon, and who are not 
asking that the national wealth and the national income be 
equally distributed or evenly divided among them. Pre¬ 
cisely what is to be gained by setting up a straw man and 
then valiantly knocking him down? 

8 1 do not know upon what statistics Professor Friday computed 
his average wage of $1320. My own computations would seem to 

indicate that Professor Friday’s average is exceedingly high. 



Our National Wealth 


157 


There’s Method in Their Madness 

I’ll tell you what is gained by it. They want to hide 
from the public: First : that an abnormal part of the 
national income is retained by them; and secondly: that 
it was by the petty process of extorting a few pennies, a 
trifling sum, a seemingly negligible amount from the non¬ 
investors that the Capitalistic group has built up its 
gigantic System, accumulated its colossal capital and piled 
up its fabulous wealth. The Capitalistic System began 
with penny extortion; it has developed into a System of 
dollar extortion. You can easily compute it for yourself. 
If the Capitalistic System can, under one pretext or 
another, in addition to a fair and legitimate profit, extort 
an average of ten cents a day from each of the 100,000,000 
men, women and children in the United States (which is 
fifty cents a day per famity) it is enriching itself by ten 
million dollars a day—or $3,650,000,000 a year. 

Penalizing the Non-Investor $750 a Year 

According to my computations the Capitalistic System 
is collecting considerably more than fifty cents a day, over 
and above a fair profit from the average non-investor (and 
also from the small investor) family. According to my 
figures it is collecting more than $2.00 a day from each 
non-investor family—$750 a year—through the medium of 
higher living costs. In view of the fact that the living costs 
of the average family have advanced from about $650 in 
1900 to $1550 in 1920, I consider my estimate of $750 a 
year extremely conservative. I do not mean to say that 
all of this $750 is confiscated by the few thousand consti¬ 
tuting the Capitalistic nucleus; it is distributed among 
whatever number constitutes the Capitalistic System. Let 
us not forget that His Royal Highness—the Landlord— 
who has just recently come into his own, and who has 
learned every Capitalistic trick—is getting a considerable 
slice of it. And a fair part of it goes for taxes—but the 
non-investor pays! 


158 


The New Capitalism 


What the Non-Investor Pays 

If yon find it difficult to grasp that the non-investor 
family is mulcted of about $750 a year, remember what the 
non-investor pays: He pays the interest on the actual 
investment, as well as interest on the inflated valuation of 
all properties; interest on the stocks, and on the bonds 
issued against the inflated valuation; besides interest on 
every dollar of capital borrowed by corporations in the 
course of doing business. He pays, moreover, every dollar 
of rent, every dollar of insurance, and every dollar of taxes, 
for all of these items are overhead expense and are charged 
up to cost of production; and the non-investor pays them 
all. He also pays a certain amount set up as reserves, sur¬ 
plus, depreciation, sinking and sundry Capitalistic funds. 
And he pays his own wages, and the salaries of the corpor¬ 
ation officials and managers. Just a word of comment 
about the latter item. Blame Mr. Roberts, if it is a digres¬ 
sion. 

The Reverse Side of the Shield 

It may be true, as Mr. Roberts tells us, that if the 
salaries of the officials and managers of corporations were 
divided among the wage earners and small salaried em¬ 
ployees, that each worker would receive only a few dollars 
■—say ten or twenty dollars a year more. So far as I know 
nobody has raised the question to date. But since Mr. 
Roberts, and others, have computed what such income of 
officials, managers, etc., if distributed among the employees 
would amount to, I insist that they also show the reverse 
side of the shield. Thus we have seen that 317,579 corpor¬ 
ation officials in 1918 paid themselves as “ compensation ’ ’ 
an amount aggregating $2,225,543,259. In other words, 
each of ,the sixteen million wage earner or non-investor 
families in 1918, contributed over $100 toward paying 
the salaries of the 317,579 corporation officials. 

If I felt disposed to push the inquiry further, and 
relentlessly pursue the argument so blithely begun by Mr. 


Our National Wealth 


159 


Roberts, I would ask him why should the wage earners pay 
the salaries of the corporation officials and managers, out 
of their wages. His answer, no doubt, would be interest¬ 
ing, and perhaps reveal the queer processes of the Capi¬ 
talistic mind. “Speak, thy servant hears!” 

In the meantime I should like to whisper a word of 
friendly counsel into the Capitalistic ear—namely that 
skating on thin ice is a dangerous sport; also that it is not 
wise to monkey with a buzz saw, or poke a stick into a 
hornet’s nest. 

Excessive Capitalistic Profits 

Let me repeat that I never have, and do not now, ask for 
an equal division of the profits (and certainly not of 
wealth). I hold, and shall at all times defend the prin¬ 
ciple, that capital—legitimate and actual capital—is 
entitled to a reasonable profit, and that the bona fide 
investor is entitled to a fair return on his investment. 
No! it is not a wider distribution of the present excessive 
profits that I would advocate—but a system of economics 
under which there would be a considerably smaller volume 
of profit than at present, going to the Capitalistic group— 
or Capitalistic “investors”—a system under which exces¬ 
sive profits would be impossible. Here you have the gist 
of my thought on this entire subject. 

Less Capitalistic Profit and Greater Wage 

Savings 

In plain English—the profits of the Capitalistic System 
are excessive, and the non-investor pays. Isn’t it rather 
strange that not one of these bright men who have com¬ 
puted how small a part of the excessive profits, if they were 
evenly distributed, would go to Labor, has ever pointed out 
that the profits are excessive, nor has one ever tried to 
score the point that if the profits of the Capitalistic System 
were less excessive—the average family (granting, of 
course, a reasonable wage or family income) could save at 
least a small portion each year out of its income. Nor has 



160 


The New Capitalism 


any statistical expert ever gone to the trouble of trying to 
express in figures precisely what less corporation profit, 
and more savings on the part of the wage earner families, 
would mean to the latter. Thus: 

If each of 16,000,000 wage earner families had been 
enabled to save only $100 a year (about 27 cents a day) 
during the past twenty years—each family would have 
saved $2000, or collectively the stupendous sum of $32,000,- 
000,000. 

And if they could have saved $200 a year (about fifty- 
five cents a day) each family would have $4000, or collec¬ 
tively a wealth accumulation of $64,000,000,000. 

And so on! “Many a little makes a Mickle, M applies 
to the wage earner as well as to the Capitalist. 

Figuring Another Way 

Nor has any keen minded Capitalistic analyst ever 
pointed out that if the Capitalistic System can continue 
to extort from sixteen million families—say an average 
of $500 a year—it will collect $8,000,000,000 a year or 
$160,000,000,000 during the next twenty years. 

No! Not a more equable distribution of the excessive 
profits among a large number but a decided diminution 
of the excessive profits that are now demanded by the com¬ 
paratively small number constituting the Capitalistic Sys¬ 
tem. That is all that those who work for a wage are 
demanding when they ask a fair recompense for their labor 
—not a division of wealth, but an opportunity to acquire 
some of it; not an undue proportion of the national income, 
but a chance to save a fraction of it, so that they might not 
be thrown on the rude mercies of the world—when sick¬ 
ness, age, or infirmity steals upon them. Is their demand 
unreasonable ? 

Concentration of Wealth 

Political Economy is said to be “the science that treats 
of the nature, the production and the distribution of 
wealth.” As a matter of fact Political Economv, without 

«/ 7 


Our National Wealth 


161 


pausing to deny that it is a “science,” concerns itself not 
at all with the distribution of wealth, but rather with the 
concentration of wealth. “Distribution of wealth” in 
economistic circles is clearly a figment of the mind. Surely 
when 80 per cent of a nation’s jiopulation, in spite of an 
admitted productive power, possess little or no wealth, and 
are deliberately prevented from sharing in the wealth they 
admittedly produce, there should not be such loud talk 
about its distribution. To speak of the wealth of a nation, 
or its distribution, when a majority of the families consti¬ 
tuting the nation possess no wealth—or just enough to 
keep them out of the poorhouse—is playing deuces wild 
with words. 


CHAPTER XIV 
The National Income 

I T is significant that there are no worth-while statistics 
pertaining to the “National Income”—that is to say, 
the aggregate income of all the people living within the 
nation. It would be comparatively easy to compile such sta¬ 
tistics if all concerned were honest enough to furnish the 
necessary data. The government is spending tens of millions 
of dollars annually for the gathering of data, and the com¬ 
puting, compiling and classifying of statistics on hundreds 
of subjects in most of which the general public has neither 
concern nor interest. So far as I know, no systematic 
effort has ever been made to definitely ascertain the actual 
income of all the people of the nation, derived from all 
possible income sources. There are in existence unrelated 
sets of earnings or income statistics for a few groups, gath¬ 
ered and compiled by government bureaus, but they are 
fragmentary, and, on account of their incompleteness, 
worthless for any practical purpose. Most of them are 
estimates or generalizations based upon data obtained from, 
or for, a limited number of persons within a given group; 
and one doubts the accuracy of the data. Under the cir¬ 
cumstances their scientific value is nil. 

Even the “Statistics of Income” compiled from the 
income tax returns, under the direction of the Commis¬ 
sioner of Internal Revenue for 1917, when all persons with 
a net income of $2000 a year, and since 1918, when all 
persons with a net income of $1000 a year, were obliged 
to file an income tax return, are of no particular value, for 
the published statistics give no hint of the actual total 
income of even those who reported, and none for those 
whose net income fell below $1000. 


162 



The National Income 


163 


George E. Roberts, Vice-President of the National City 
Bank of New York, in an address delivered upon the occa¬ 
sion of his retirement from the Presidency of the American 
Statistical Association, 1 bewailed the fact that there was 
no reliable information with regard to the national income; 
no comprehensive statement showing “how it was disposed 
of, who absorbed and enjoyed it,” etc.; and declared that 
such a statement ‘ ‘ would take the place of anonymous esti¬ 
mates in circulation.” 

It is, perhaps, nugatory to ask why has the American 
Statistical Association, in the more than eighty years of its 
existence, never made an effort to obtain the data necessary 
for a set of worth-while statistics pertaining to the incomes 
of all the people derived from all sources. Either the 
American Statistical Association is lacking in ingenuity 
and does not know how to go about accomplishing so simple 
a task, or else it believes in the saying “where ignorance 
is bliss ’twere folly to be wise.” 

In the absence, then of any definite information on so 
vital a subject as the incomes of the people of the United 
States, and the sources from which their incomes are 
derived, we must turn to the studies of men who, consider¬ 
ing the limited data and fragmentary material at their 
disposal, have made computations which, while neither 
scientific nor conclusive are at least interesting and indica¬ 
tive. 


The Income “Authorities” 

I have before me as I am writing this chapter, Professor 
Willford Isbell King’s “The Wealth and Income of the 
United States.” Professor King is recognized among the 
statisticians and students of sociology and of the econom¬ 
ists in this country “as a very eminent man in his particu¬ 
lar field.” (His studies do not extend beyond the year 
1910.) Also a recently published book entitled, “The 
Income in the United States—Its Amount and Distribution 


1 “The Equilibrium in Industry,” an address delivered Dec. 29, 1920. 



164 


The New Capitalism 


from 1909-1919”—and which purports to be a summary 
of an exhaustive statistical analysis of the income of the 
United States for each year, 1910-1919, prepared by the 
staff of the National Bureau of Economic Research: Wes¬ 
ley C. Mitchell, Willford I. King, Frederick R. Macaulay 
and Oswald W. Knauth. Also the Statistics of Income, 
compiled from the returns for 1918, under the direction of 
the Commissioner of Internal Revenue. Besides a half 
dozen books of a less pretentious character, dealing in a 
fragmentary and desultory way with Incomes, Profits, 
Wages, etc. 

I had originally intended to go into an extended analysis 
of all available income statistics and statements pertaining 
thereto, but discovered that this would lead me too far 
afield. For the sake of brevity I have concluded to con¬ 
fine myself in this chapter to a few independent comments, 
observations and conclusions, on some of the principal 
points involved in the subject—the National Income. 

What Is Income f 

I suppose, to do myself justice, I ought to go into lengthy 
definitions of Income, Profit, etc., and sundry other terms 
conspicuous in the Capitalistic glossary and current in 
Accountancy parlance. But I will not enter into that at 
present. Nevertheless when the Secretary of the United 
States Treasury Department maintains, and the Supreme 
Court of the United States, decides that stock dividends 
are not income, it is easy for a mere student to run a-foul 
of Capitalistic finicalness. Briefly let me say that every 
profit is an income, but not every income is a profit. For 
example, wages are income, but not profit. But when 
income is convertible into property, capital or wealth, 
then it becomes profit, no matter with what mystic terms 
the fact is disguised or obscured. 

But you may dismiss what I say on this subject, and be 
guided entirely by what the economic authorities have to 
say. Professor King says: “A workman’s wages, interest 
on loans, the rent of land, and the profits of business men, 


The National Income 


165 


are all classified as income. A man is said to receive 
income through gifts or inheritance, through a rise in the 
value of property in his possession, through winnings from 
lotteries or gambling, or from the sale of products which 
he himself manufactures or produces from the soil. ,, 

We may accept this definition as coming within the 
limits of permissibility, though in an argument I should 
protest against considering “a rise in the value of prop¬ 
erty" as income. 2 However, it is not to argue but rather 
to clear the subject of inherent obscurities that I am writing 
this chapter. To me an income, statistically figured, must 
be an actual money income, or convertible into money or 
property, capital or wealth. The line must be drawn some¬ 
where, for if things other than actual revenue derived from 
one of the admitted and legitimate sources are computed as 
income, money statistics are meaningless, and the whole 
subject is reduced to an absurdity. 

“Reductio ad Abswrdum” 

This tendency to include under 44 Income” sundry things 
to which it is utterly impossible to give a money value, is 
rampant among statisticians and economists, and Professor 
King admits it. “In recent years,” he says, “most econo¬ 
mists have added to the income list those pleasures which 
a person receives from the use of free goods. A man enjoys 
a beautiful sunset. Does he not receive income as truly as 
the man who enjoys the Oriental rug in his home? One is 
free and the other costs money, but both alike appeal to the 
man’s sense of beauty.” 

Absurdity can go no further! The pity is that the idio¬ 
syncrasies of statisticians, and vagaries of economists are 
becoming painfully apparent in their so-called “Income 
studies.” For example, on page 59 of “The Income in the 

2 I think I have shown at sufficient length how “the value of 
property” has been artificially and arbitrarily inflated—to the tune 
of billions of dollars. I am willing to consider the dividends or inter¬ 
est derived from the inflated valuation as “income” but not the rise 
In the inflation itself. If anyone insists on including the fictitious 
inflation in value in the statistics, it behooves me to say that the 
proper place is in the Wealth statistics—not the Income section. 



166 


The New Capitalism 

United States”—(one of the books before me)—it is seri¬ 
ously proposed to include in the “national income” the 
hypothetical wages of eighteen to twenty million “Amer¬ 
ican women, sixteen years of age and over, engaged in their 
own homes without monetary remuneration.” Thus, for 
1919 we find $900 allotted per housewife; and the “money 
value” of their aggregate services is computed at $18,450,- 
000,000. However great a value one may place on the 
services of housewives, (and the value of their services is 
inestimable) what has value to do with actual income? 
The truth is that housewives throughout the world are not 
receiving any money compensation; and statisticians have 
no right whatever to credit them with a money revenue 
that they do not receive. The outstanding, glaring fact is 
that the eighteen or twenty million American housewives 
are not receiving $18,450,000,000 in the course of twelve 
months for the work they do in their homes. Why, then, 
pretend that they are? 

Sunsets, and evening stars, fresh air, clear skies, and cool 
summer breezes, however delightful and enjoyable, are not 
Money Income. That’s flat! The mythical wages of house¬ 
wives buy no hats, nor shoes, nor bread. Let's have done 
with this kind of economic tom-foolery! 

The Non-investor’s Income Is Gross and 

Disappears 

Before entering upon an analysis of the national income 
I want to fix another point clearly in the mind of the 
reader. I am not aware that a single economist has ever 
commented on the fact that in all the statistics for incomes 
there is a queer mixture of gross and net income. With 
regard to the non-investors their income is in all cases gross. 
This is predicable of all wage earners, which includes the 
small salaried men and women, small business men, most 
professional men, in brief all those receiving the equivalent 
of an average wage. I beg the readers to bear this in mind. 
The income of the wage earners is gross. There are no 


The National Income 


167 


reserves, no surplus, no undivided profits, no depreciation 
and replacement fund, no dividend-earning assets, no in¬ 
terest bearing securities, no principal, no wealth, no capital, 
nothing except their wage income, which in most cases is 
spent before it is received. 

Out of this gross income (their wages) the non-investors 
must pay the living expenses of themselves and those de¬ 
pendent upon them, which leaves them penniless at the end 
of the year. While the wage earners are accredited by the 
statisticians with having received a formidable amount of 
wages (income) in the course of twelve months—the sta¬ 
tistics are silent concerning the fact that generally speaking 
the wage earner’s income has entirely disappeared by the 
end of the year. 

The Investor’s Income is Net, and Accumulates 

Whereas the income of investors, of those whose revenue 
is derived from other sources than wages—from invest¬ 
ments or speculation—dividends, interest or rent, is net 
income— i. e. profit. If it is argued that these, too, must 
pay their living expenses out of their income, I’ll agree. 
But there is this to say—that after a reasonable deduction 
for living expenses a vast amount of the income remains 
and is converted into additional profitable investments, 
from the accumulation of which the investors will derive a 
constantly increasing revenue in the succeeding years. 
How great the aggregate amount of net income is can be 
judged from the capital accumulations during the past 
twenty years, which show an increase in the national wealth 
of about ten billion a year. 

Nor must we forget that in addition to interest, dividends, 
rent and sundry profits, many of the investors receive a 
salary or compensation, which, in most cases, is far in 
excess of living expenses. Thus, for example, the United 
States Income Statistics for 1918 show that in that year 
317,579 corporations reported $2,225,543,259 as “compen¬ 
sation of officials.” 



168 


The New Capitalism 
National Income Estimates 

According to Professor King (Table XXX, p. 158) the 
total national income for the year 1910 was $30,529,500,000. 

According to Otto H. Kahn, the total national income 
for the year 1918 was $55,000,000,000. 

Estimates made by statistical experts place the national 
income in 1918 between fifty-five and sixty billion. 

It is immaterial whether we fix upon fifty-five or sixty 
billion as the approximately correct estimates for 1918. 

The following statistics from “The Income in the United 
States” (Table 2) make an attempt at giving the amount 
of income and the sources from which derived, and are, 
therefore, of especial interest here. 


1918 


Percent of 
Total Income 

Agriculture . 

$12,682,000,000 

2,013,000,000 

21.01 

Mineral production . 

3.33 

'Manufacturing 

A. Factories . 

16,018,000,000 

26.53 

B. Construction . 

1,280,000,000 

2.12 

C. Other trades . 

1,704,000,000 

2.82 

Transportation 

A. Bailway, Pullman, Express, 

Switching, and Terminal 

Companies . 

3,684,000,000 

6.10 

B. Street Bailway, Electric Light 
and Power, Telegraph and 

Telephone Companies . 

1,042,000,000 

506,000,000 

1.73 

C. Transportation by w r ater. .. . 

.84 

Banking . 

767,000,000 

1.27 

Government . 

5,352,000,000 

8.87 

Unclassified industries and miscel- 

laneous income . 

15,318,000,000 

25.38 


$60,366,000,000 

100.00 


By Way of Comment 

I cannot forbear to make a few comments on Ike 
above statistics. For example—take the item Agriculture. 
According to the United States Statistical Abstract (1920) 
the value of the farm wealth produced in 1918, is given as 
















The National Income 


169 


$22,480,000,000. In the above statistics (Table 2), the in¬ 
come derived from Agriculture is given as $12,682,000,000, 
which raises the questions: How is the “income” com¬ 
puted ? Is the income gross or net ? Has an allowance been 
made for rent and food? For interest on investment, and 
salaries of owners or managers? Does the figure given 
cover the income of all those engaged in agriculture, or 
only of the farm owners, tenants, share farmers, etc. ? Are 
wages paid to farm laborers, included in the figure given? 
Is the unsold portion of the farmers’ products included in 
“income”? Are the theoretical wages of the farmers’ 
wives for household work or farm labor taken into con¬ 
sideration, etc.? When sunsets and waterfalls, and rain 
and sunshine can be considered as “income,” it behooves 
one to inquire carefully just what has been included in 
income, and what deductions and allowances have been 
made, etc. 

Or take the item Government. I, for one, question the 
right to include Government in any Income schedule. 
Under no circumstances can the income of the Government 
be considered as part of the national income; it is clearly 
a national expense. None will dispute that the expenses 
of the Government are paid out of the income of the people, 
principally out of the wages of non-investors through the 
medium of direct and indirect taxes. But if it is contended 
that it is legitimate to consider the expense of Government 
as a national income item, then I shall insist that the full 
amount of government expense be included, state, city, 
county, etc., as well as federal. 

I could note a few other incongruities in Table 2, but 
that is irrelevant at this time. However, just to satisfy 
my curiosity, I should like to know whether no income is 
derived from stock transactions—the repeated buying and 
selling of securities, stocks, bonds, notes, mortgages, etc., by 
a comparatively small group of “investors.” Surely it is 
a considerable item. Also the Board of Trade transactions 
in cereals, produce, etc., involving billions in the course of 


170 


The New Capitalism 


a year. Also where is the income derived from the buying 
and selling of real estate, land, buildings, etc. Also what 
percentage of the national income is derived from the 
Insurance business? Etc., etc. Is it possible that all these 
things are lumped under “Unclassified Industries and 
Miscellaneous Income”? If so I should like to see them 
classified, and itemized. 

Merged Statistics 

But these things are really beside the question at this 
time. What concerns us most just now is that the statistics 
in Table 2 give no hint nor clew as to the wage earners’ 
share in the national income. And that is what I want to 
know most. If the national income in 1918 was sixty bil¬ 
lion, or as the conservative Mr. Kahn claims, fifty-five 
billion, what proportion of the income went to the wage 
earners, the small salaried men and women—in brief the 
non-investors ? 

No “study” that I have ever seen answers this question. 
In the book, “The Income of the United States,” Table 21 
(p. 107), gives a “rough estimate” of the income from all 
sources of salary and wage workers. I should say the 
estimate is rough, exceedingly rough—wages and salaries 
lumped as usual, and the meager salary of the clerk merged 
into the munificent reward of the employers. 

The ‘ ‘ rough estimate ’ ’ raises a point worthy of some note 
in a chapter dealing wfith the national income. For some 
mysterious reason “Wages and salaries” are lumped in 
practically all income statistics; also in corporations’ re¬ 
ports. Moreover, under “salaries” is included the salary 
paid to the clerk employee and to the high officials. I find 
it difficult to make myself believe that this lumping of 
wages and salaries is not a deliberate effort to conceal how 
small a part of the national income goes to those who work 
for a wage or small salary—the non-investors. But what¬ 
ever the concealed motive or hidden purpose, the fact is 
glaring—the statistics speak for themselves; wages and sal¬ 
aries are merged; and “salaries” includes the salaries of 



The National Income 


171 


clerks and officials. Table 21 is utterly worthless for the 
purpose of determining what portion of the national income 
goes to the wage earners. 

Untangling a Skein of Statistics 

But let us make an attempt at approximation by com¬ 
puting some of the pertinent statistics given in Table 22 
for the year 1918. 

From the statistics for Farmers we discover that the 
aggregate income of 4,433,000 farmers, having an income 
of less than $2000 a year, was $4,600,000,000, (or $1038 
per farmer). The aggregate income of 2,008,000 farmers 
having an income of more than $2000 a year was $6,300,- 
000,000, (or $3137 per farmer). Consequently the farm¬ 
ers’ share of the income was $10,900,000,000, (or an average 
of $1676 per farmer). 

From the statistics “all income receivers except farm¬ 
ers,” (Table 22), we learn that the aggregate income of 
30,450,000 persons having an income of less than $2000 a 
year was $32,100,000,000, (or $1054 per person). 

The aggregate income of 3,400,000 persons having an 
income of more than $2000 a year, was $17,400,000,000, or 
$5118 per person. 

Here, then, we have three groups: 1. Farmers; 2. Those 
whose income was less than $2000; and, 3. Those whose 
income was more than $2000. Counting those whose income 
fell below $2000 generally as w’age earners, and those whose 
income exceeded $2000 as constituting the investor group, 

we get the following result: Average 

Total number Aggregate income per person 


Farmers . 6,441,000 $10,900,000,000 $1676 

Wage earners. 30,450,000 32,100,000,000 1054 

Investors. 3,400,000 17,400,000,000 51184 


40,291,0003 $60,400,000,000 

3 It is only fair to say that the economists who compiled these 
statistics included among- those employed 2,500,000 soldiers, sailors 
and marines, to each of whom they generously allotted an average 
income of $700, or a total of $1,750,000,000. 

4 It is interesting to note here that in 1918, according to Table 27 
in the same work (p. 136) only 842,458 persons in the United States 
had an income of more than $5000 a year. Who can reconcile these 
statistical contradictions? I confess my inability. 







172 


The New Capitalism 


The Average Income Per Family 

So far, so good! But when we try to reduce the income 
of the forty million persons to a family basis, we discover 
that there is something fundamentally wrong somewhere. 
In 1918 the population was 105,000,000, (21 million fam¬ 
ilies). If we consider each farmer and each investor as the 
head of a family of five, these two groups account for about 
fifty million persons, or approximately ten million families. 
This would leave fifty-five million persons, or eleven million 
families, as constituting the wage-earner group. Of these 
fifty-five million, it would appear, 30,450,000 were, in 1918, 
engaged in gainful occupations (or about 2.77 persons per 
family) which would yield an income of $2918 per wage- 
earner family; which is preposterous. 

To the credit of economists be it said that none has ever 
statistically allocated so handsome an “average income” 
to the wage-earner families—not even figuring into the 
income account, sunsets and housewives’ imaginary wages, 
and lumping “wages and salaries” as is their custom. It 
must be admitted that they have been fairly conservative, 
as may be judged from the following statistics appearing 
in Professor King’s tables (p. 128 and p. 169). 

Family Income Average Money Wage 

in Dollars per employee, per annum 


1850. 535 $204 

1860. 613 265 

1870. 889 397 

1880. 735 323 

1890. 941 398 

1900. 1109 417 

1910 . 14945 507 


All through the war the average income per family was 
estimated between $1500 and $1850. Let us adopt the 
latter figure for the present. In the course of the past 

5 From Professor King’s Table XLIV (p. 228) we learn that in 
1910 over half (51.54 percent) of the families in the United States 
had an income of less than $800 a year; 11.89 percent had an income 
between $800 and $1000 a year; and 12.26 percent had an income 
between $1000 and $1200. In other words, in 1910, over eighty percent 
(81.69 percent) of the families in the United States had an income 
of $1200 or less. 










The National Income 


173 


few years I have read a number of articles speaking dis¬ 
paragingly of the statistical average family, and their sta¬ 
tistical average income. An anonymous writer in The 
Saturday Evening Post not long ago, was particularly sar¬ 
castic in his remarks. I share the anonymous author’s 
objection to the statistical average family income, but for a 
different reason. My objection is that the average is ob¬ 
tained by dividing the total wages, salaries and compensa¬ 
tion of all those listed as “engaged in the gainful occupa¬ 
tions” equally among all the families. Consequently a 
large number of families, whose actual income falls con¬ 
siderably below $1850 a year, are made statistical sharers 
in wages and salaries they do not receive; whereas thou¬ 
sands whose income exceeds from ten to a hundred times, 
and a thousand times $1850, statistically are placed in a 
class to which they do not belong. 

It is well to remember here that in 1918 less than twelve 
percent of those engaged in gainful occupations filed an 
income tax report. If the statistical $1850 “average income 
per family” is unfair, as the anonymous contributor to The 
Saturday Evening Post would have us believe, it is unfair 
only to the millions of families whose actual income falls 
below $1850. 

But if the statistical “average income per family” was 
as high as $1850 in 1918-1920, the average is not $1850 at 
present, for the group of wage earners and salaried men 
and women. Their theoretical participation in the statis¬ 
tical $1850 annual income was temporary, lasting less than 
three years, and has been utterly destroyed by material 
decreases in wages and salaries, to say nothing of loss of 
wages on account of unemployment, or actual loss through 
enforced idleness, during the two years following the 
armistice. 

But whatever may be the portion of the national income 
that goes to the wage earner or non-investor families, never 
forget that little or none of it is in their possession at the 
end of the year. Their necessary living expenses consume 
their gross income. 


174 The New Capitalism 

The Investor's Share 

Not so with the investor group. According to the statis¬ 
tics given in this chapter, 3,400,000 persons had an income 
in 1918 totaling $17,400,000,000. Let us say that this 
amount represents the income of the investor group. How 
was it distributed? The statisticians are silent. We must 
therefore, make our own deductions. What part of this 
stupendous sum went to the bona fide small investors? 
Again there are no statistics. Shall I say ten percent, or 
$1,740,000,000 ? I doubt it! But if you think otherwise you 
may double or treble this amount. 6 

In Chapter V, you may recall, I set aside one million 
investors “ whose investments are in things other than the 
securities of corporations. ” What part of the $17,400,- 
000,000 went to them ? Who can tell ? And what part went 
to the speculative investors? Does anyone know? 

Of one thing we are quite certain, and that is that the 
lion’s share of the $17,400,000,000 income went to the four 
hundred, or four thousand (or forty thousand, or four 
hundred thousand, if you prefer), who derive enormous 
incomes from many principal sources: 

1: From the Banks. 

2: From the Insurance Companies. 

3: From the Railroad and Transportation Systems. 

4: From the Public Utilities. 

5: From their Monopoly of the Raw Materials and 
Natural Resources. 

6: From their Control of the Leading Industries. 

7: From Stock, and Board of Trade, Transactions. 


6 Let those who may be tempted to double or treble the amount 
of income of the bona fide small investors remember that $1,740,000,000 
is six percent on twenty-nine billion dollars. Or let them take a glance 
at the Stockholders Statistics appearing in the Annual Report (1921 of 
the American Telephone and Telegraph Company—a typical corpo¬ 
ration) according to which there were 186,342 shareholders of record 
on December 31, 1921. Of this number 63,857 held five shares or less; 
and 84,134 between five and twenty-five shares. These are the small 
stockholders. In the A. T. and T. Co., 128,000 employees are stock¬ 
holders. 



The National Income 


175 


Concealed Incomes 

But in addition to the $17,400,000,000 of admitted income 
there are concealed incomes, which are in reality profits 
camouflaged as expenses, reserves, etc. For, just as it was 
necessary to disguise the crime of overcapitalization (i.e. 
capitalizing profits) by the invention of some euphonious, 
indefinite phrases, such as “merger value,” “combination 
value,” “earning power,” “good will,” etc., it was found 
necessary to invent accounting and cost systems to camou¬ 
flage the reprehensible Capitalistic practices and particu¬ 
larly to conceal: 

1: That the profits are vast—considerably greater than 
six percent even on the inflated capitalization. 

2: That the bona fide small investor does not participate 
appreciably in their distribution. 

3: That the enormous profits are extorted from the gen¬ 
eral public—principally the wage earners—the non¬ 
investors. 

Capitalistic Accounting and Cost Systems 

The scientific accounting and cost systems, devised by 
some of the acutest minds, are still in a state of evolution; 
they are being revised, amended, and improved constantly. 
Books and special periodicals dealing with the fine and 
subtle points of accounting, are published in increasing 
number. Nearly all of the colleges and universities have 
special accounting courses. In brief, the highly scientific 
Capitalistic accounting and cost systems are now in general 
use; even concerns and individuals that cannot be said to 
be a component part of the Capitalistic System have adopted 
them, for their great benefit to those who employ them can¬ 
not be denied. No question is ever raised regarding their 
validity, their fairness, or their justice. 

As a matter of fact most, if not all, of the big corpora¬ 
tions, keep two sets of books—one for those on the inside, 
showing the actual condition and earnings—and another 
for the stockholders and the benefit of the public. This sys- 


176 


The New Capitalism 


tem of keeping two sets of accounts was brought out in a 
number of the federal inquiries held at different times 
during the past dozen years. 

Capitalistic Secret Reserves 

But I have no desire to enter into a discussion of account¬ 
ing and cost systems, their principles, subtleties and tech¬ 
nicalities. Therefore I shall confine myself to a brief gen¬ 
eral discussion of a few of the camouflaging practices, or 
rather devices, now almost universally employed and con¬ 
sidered entirely legitimate—devices which serve the triple 
purpose of keeping prices at a high level; pre-empting a 
goodly percentage of the profits for themselves; and exclud¬ 
ing the bona fide stockholders from participation therein. 

I will not particularly dwell on the items: interest; fixed 
charges; overhead expense; maintenance expense; salaries 
of officers; and sundry items calculated to keep production 
cost at the highest possible notch, for I am at this moment 
dealing with concealed profits, not with the cost raising 
devices. 

The devices that conceal profits are the several secret 
reserves. But let an authority on accounting explain them: 

‘ ‘ Secret reserves may take several forms, as writing down 
to a comparatively small figure valuable assets, providing 
excessive depreciation, providing excessive reserves for bad 
debts, or contingencies, valuing stocks of materials and 
products on hand at values largely below either cost or 
market, or including special reserves for future contingen¬ 
cies under the head of accounts payable. Inasmuch as the 
majority of industrial corporations do not publish their 
gross earnings, such reserves can easily be made, and are 
made continually in a form in which they do not appear in 
any way in the published accounts, and are known, there¬ 
fore, only to the directors and managers/’ 7 

7 Prom “Accounting- Practice and Procedure,” by Arthur Lowes 
Dickinson, “Balance Sheet Liabilities,” Chapter VI, p. 151. 



The National Income 


177 


A Concrete Example 

I can best illustrate the principle involved by giving an 
actual example. John Skelton Williams, at the time Comp¬ 
troller of the Currency in his letter to Elbert Gary, speak¬ 
ing of the 1918 report, said that the United States Steel Cor¬ 
poration’s net earnings amounted to $549,180,000, but made 
deductions which left net earnings of only $274,603,000. 
“This deduction,” said Mr. Williams, “included an item 
of $96,675,000 for maintenance and repairs, though the 
company was carrying on its books to the credit of ‘depre¬ 
ciation and extraordinary replacement’ the impressive sum 
of $191,281,000.” 

And this sort of thing, mind you, has been going on for 
a quarter of a century. I do not know—I cannot esti¬ 
mate—how many billions of dollars of concealed profits in 
the aggregate have been diverted by corporations, man¬ 
agers, owners and officials into the coffers of a few thousand 
constituting the “inner circle” of the Capitalistic-Mam- 
monistic group. My guess is that several billions a year 
are thus “set aside.” And I believe it’s a conservative 
guess. I do not think that I am unfair to the Capital¬ 
istic “investor” group when I say that in addition to its 
admitted income of $17,400,000,000 in 1918, it can be cred¬ 
ited with an “income” of several billions of concealed 
profits. But whatever the actual figures—the fact cannot 
be denied. 


The Established Order 

All the available statistics with regard to wealth and 
income establish one thing beyond the shadow of a doubt, 
namely—the concentration of wealth in the hands of a few. 
This is not exactly a phenomenon, for “ ’twas ever thus,” 
even from the beginning. Indeed the concentration of 
wealth in the hands of a few was for centuries practically 
accepted by the masses as a matter of course. Moreover, 
they believed that they were helpless to alter it. 

But during the past century tremendous changes have 


178 


The New Capitalism 


taken place in the world. The masses are no longer dis¬ 
posed to contemplate the continued process of concentration 
with patient indifference. For a hundred years they have 
been more or less insistently asking a hundred questions 
which may be summarized thus: ‘ ‘ Why should a favored 
few garner, or be permitted to garner, all the riches of the 
earth; to accumulate for themselves all the wealth, and the 
manifold blessings and advantages that (real or fancied) the 
possession of wealth implies or is supposed to imply. Why 
should they be permitted to own and to acquire all the prop¬ 
erties from which wealth is derived? Why should they be 
permitted to practically confiscate for their own private en¬ 
richment the resources which Nature gave to all the people? 
Why should we, year after year, sweat and toil, labor and 
slave, merely for them? Why are they and they alone 
entitled to the usufruct of our labor? We are no longer 
satisfied with a bare living; we want a greater share of the 
wealth we produce, and which is markedly swelling the cof¬ 
fers of those who already have vastly more than they need, 
and more than is good for them, or for us. This concentra¬ 
tion of the country’s wealth is wrong; it is an injustice, and 
it must cease.” 

And hundreds of more or less capable thinkers and writ¬ 
ers have tried to answer these questions more or less intelli¬ 
gently, more or less intelligibly, while thousands of others 
have come to the defense of what it pleases them to call 
“the established order.” 

Thus far the advocates of “the established order” have 
been victorious—the concentration of wealth in the hands 
of the few continues, and is a demonstrable fact. But it is 
becoming increasingly clearer to those not entirely blind, 
that “the established order” is by no means the accepted 
order; indeed is being rejected by a continuously increas¬ 
ing number. The end of the “established order” is ap¬ 
proaching. 


CHAPTER XV 


“Labor, Capital and Brains” 

I N October, 1920, the American Bankers’ Association 
held its forty-sixth annual Convention in Washing¬ 
ton, D. C. In its report the Committee on Resolutions 1 
* ‘ fully realizing that a special duty devolves at this time on 
the bankers of this country to aid as best they may in meet¬ 
ing conditions and solving problems with a view to the 
welfare of the nation” (meaning, of course, their own wel¬ 
fare) declared itself as follows: 

“With special emphasis we would call the attention of 
labor to the essential unity of the three great elements 
entering into the industrial structure, labor, capital and 
brains. A fair balancing of interest between these factors 
in production of wealth must be maintained to insure their 
common prosperity. Failure to recognize this balance 
may easily wreck industry, and we call upon each factor 
involved to recognize this basic truth,” etc. 


The Slogan 

“Labor, Capital and Brains.” This is the new substi¬ 
tute for that other slogan, “Labor, Capital and Manage¬ 
ment,” which for a while was freely employed by writers 
and speakers—the valiant apologists for, and defenders of, 
the Capitalistic Entrepreneur System. But “Labor, Cap¬ 
ital and Management ’ ’ was so clearly an absurdity—Capital 
and Management could easily be shown to be in all cases 
identified—one and the same thing—cut out of the same 
piece of cloth—that it has now practically disappeared 
from the writings and utterances of those, who, by pen or 

i See Journal of the American Bankers Association, November, 1920, 
page 289. 


179 




180 


The New Capitalism 


word of mouth, discoursed in favor of the Capitalistic 
Entrepreneur System. In every instance Capital and Man¬ 
agement are synonymous, and the two in deadly unison are 
arrayed against Labor. 

The same can be said of the new version, “ Labor, Cap¬ 
ital and Brains. 77 Like Capital and Management, Capital 
and Brains are one and the same thing. The same indi¬ 
viduals who control capital are also considered ipso facto 
the possessors of brains—the sole possessors, the sole inher¬ 
itors of that rare thing. The two—Capital and Brains— 
are an interlinked unit—a solid phalanx arrayed against 
Labor. 

The Propaganda 

The slogan is not new; it was not invented by the Reso¬ 
lutions Committee of the American Bankers 7 Association; 
it has been current for some time. But the Bankers’ Asso¬ 
ciation has infused into it the breath of vitality. It will 
become more conspicuous. We will probably hear it repeat¬ 
edly from now on, for the Public Relations Committee 
of the American Bankers 7 Association at the same time 
reported that: 

‘ ‘ More than 650 of the leading newspapers of the country 
have been supplied every two weeks with bulletins contain¬ 
ing news of banks and the association. The editors have 
been exceptionally responsive. 7 7 . . . 

“Nearly a hundred financial papers and writers have 
received a weekly news service. These editors have re¬ 
sponded in a most wholesome fashion. . . . 

“Public opinion, that elusive mistress of fortune, is 
courted assiduously these days with various forms of public 
relation by people in all walks of life, and is recognized in 
the constructive efforts of most all organizations, 77 etc. 

In an article in the North American Review (March, 
1921) entitled “The New Socialism, 77 by John Corbin, we 
find the new idea as exemplified in the slogan “Labor, 
Capital and Brains 77 neatly interpreted. “In the realm of 
industry,” writes Corbin, “there is more than labor, more 



4 ‘Labor, Capital and Brains” 


181 


than capital—more than the two combined and eager to 
work in harmony. The body and the members are power¬ 
less without the brain that is strong and clear—force to 
lead, and, when need is—to rule.” 

The Capitalistic Claimants 

Probably before this book of mine is completed I will run 
across many repetitions and paraphrases of the new slogan, 
“Labor, Capital and Brains.” In the meantime let us 
analyze it briefly. In the minds of those who will employ 
it, Capital and Brains will, of course, always mean one and 
the same thing. They will never associate Brains with 
Labor. It will be assumed that only the Capitalistic Entre¬ 
preneurs have Brains; by no process of reasoning will 
“Brains” ever be conceded to reside in any other head. 
Only into the Capitalistic cranium has the Creator injected 
Brains. In the opinion of Capitalistic Entrepreneurs the 
“brains” in a calf’s head are superior to those in Labor’s 
head, for they can, at least, be scrambled. By “Brains” is 
meant a superior intelligence—ability, talent, genius—a 
sort of “divine right.” The Capitalistic group alone, it 
would seem, has intelligence, ability, talent, genius. Cap¬ 
italistic “Brains” is a wonderful thing in nature. 

Yet all the great inventions and discoveries were made, 
not by the Capitalistic confraternity, but by workers, men 
who, while working for a wage in shop or factory, or at the 
bench; or in their moments of studious leisure, pondered 
over the mysterious principles of their branches of labor, 
and devoted their best energy to the mastery of principles 
and technique—invented machines, improved them, per¬ 
fected them, and the sum total of whose multiplied benefits 
today constitute the principal asset, capital, wealth—and 
the chief means of enrichment, of the Capitalistic group. 

If it served any other purpose than to show the utter 
stupidity of the new slogan, and thus stultify the Capital¬ 
istic crowd, I should like to give over a chapter or two of 
this book to a brief paragraphic record of some of the most 
important achievements in the field of inventions and dis- 



182 


The New Capitalism 


coveries, beginning, let us say, with Richard Arkwright, 
inventor of the spinning jenny. 

Such a record would establish beyond cavil or dispute, 
that if brains had not resided in bountiful quantities in 
ordinary heads, the Capitalistic brain today, assuming that 
it would have the ability to function at all, would die of 
inanition. It is because there was a high quality of brains 
developed long prior to and entirely independent of the 
Capitalistic Entrepreneur System, that the sundry indi¬ 
viduals constituting the Capitalistic Entrepreneur group 
owe their success and fortune. Has J. Pierpont Morgan 
added anything to the sum and substance of human happi¬ 
ness? For what great mechanical invention is Elbert Gary 
conspicuous in the eyes of the world? We speak of Besse¬ 
mer steel, but “lo and behold ye”—the Bessemer process 
was not invented by Sir Henry Bessemer, but by William 
Kelley, an iron maker of Eddyville, Kentucky, whose ex¬ 
perimentations antedated Bessemer’s by nearly ten years. 
Both Bessemer’s and Kelley’s processes would have yielded 
no practical results but for the discoveries of Mushet and 
Gorannson, particularly the former’s. But ‘ ‘ Mushet’s Brit¬ 
ish patents lapsed, and became public property, owing to 
his poverty and other unfortunate circumstances. ’ ’ Mushet 
died ‘ ‘ poor and unknown, while Bessemer was knighted by 
Queen Victoria for his invention and received royalties 
aggregating $500,000 a year.” 2 

Calling the Turn 

Nearly ten years ago the Capitalistic group (or more 
accurately speaking the dominant heads of the Capitalistic 
Entrepreneur banking group) sought to win for themselves 
the unstinted applause of the world for their wonderful 
‘‘brains.” Louis D. Brandeis treats of it in an interesting 
chapter 3 in his book “Other People’s Money.” He tells us 
that J. P. Morgan & Co., declared in a letter to the Pujo 

2 “The Marvels of Modern Mechanism," by Jerome Bruce Crabtree, 
p. 333. 

3 “Big - Men and Little Business,” page 135. 



“Labor, Capital and Brains” 


183 


Committee that ‘ ‘ practically all the railroad and industrial 
development of this country has taken place initially 
through the medium of the great banking houses.'’ 

And then Mr. Brandeis proceeds to show that just the 
reverse is true, that ‘ ‘ nearly every such contribution to our 
comfort and prosperity” was “initiated without their aid,” 
and it was not until after success had been attained, or ‘ ‘ the 
possibility of success had been demonstrated,” or not until 
‘ ‘ the funds of the hard}^ pioneers, who had risked their all, 
were exhausted,” that the financial “brains” came “into 
relation with these enterprises.” 

“This is true of our early railroads,” writes Mr. 
Brandeis, ‘ ‘ of our early street railways, and of the automo¬ 
bile ; of the telegraph, the telephone and the wireless; of gas 
and oil; of harvesting machinery, and of our steel industry; 
of the textile, paper and shoe industries; and of every other 
important branch of manufacture.” And in support of 
his contention he gives the pertinent facts with regard to 
the industries mentioned. 

“By Their Works Ye Shall Know Them” 

Capital and Brains!—leaving Labor for the moment 
entirely out of the equation, Capital and Brains forsooth! 
At this very moment the country is in industrial turmoil 
and economic upheaval, thanks to the Capitalistic Entre¬ 
preneur System evolved by Capitalistic Entrepreneur 
brains. For nearly two years the Great Industries were 
practically at a standstill, and millions of workers out of 
employment or working only part time. According to the 
balance sheets of some of the leading corporations—in spite 
of the tremendous increase of business and the greatly 
increased prices, and enormous profits reaped during the 
past twenty years, they were on the verge of bankruptcy. 
Some of them saved themselves by “reorganization” 
schemes, evolved by Capitalistic “brains”—by the flotation 
of more and more watered stocks, and bond and note issues. 


184 


The New Capitalism 


“A Modern Instance” 

In February, 1921, W. W. Atterbury, Vice President of 
what is presumably the most prosperous railroad system in 
the country, made the statement that practically all the 
railroads are insolvent, and more than intimated that the 
only thing that can save them from disaster is to cut down 
the wages of railroad employees. 

On September 26, 1921, Mr. Atterbury told the members 
of the Mutual Benefit Society of the road, which met in 
Philadelphia on that date, that wages must come down or 
the roads would be forced into Government control, or 
receiverships. 

“It is true,” he said, “there isn’t much left for a further 
reduction in wages, and it isn’t pleasant to hear or contem¬ 
plate ; but there faces us either reduction or receivership. ’ ’ 4 

For many years the railroads have been in a notoriously 
bad condition. Many of them have gone through the hands 
of receivers. At the time of the war, when the Government 
took them over, some of the important railroad properties 
were in a dilapidated condition. To rehabilitate them it 
was necessary to provide funds borrowed from the non- 
investor public. And even when the roads were turned 
back it was found imperative to supply the roads with addi¬ 
tional funds, borrowed from the non-investor public, besides 
passing a law guaranteeing returns to the “investors” in 
railroad “securities.” And yet the Capitalistic Entrepre¬ 
neurs dare to shout “over the roofs of the world”: “With 
special emphasis we would call the attention of labor to the 
essential unity of the three great elements entering into the 
industrial structure, labor, capital and brains.” 

“Whom the Gods Would Destroy” 

A peculiar symptom of madness—a sort of “divine 
right” lunacy, is beginning to manifest itself among the 
self-appointed trustees of the nation’s wealth—those who 
have deluded themselves into the belief that “capital and 


4 Chicago Tribune, September 27, 1921. 



“Labor, Capital and Brains” 


185 


brains'’ are theirs by ordination of Providence—that they 
are financial and industrial supermen, set apart and above 
ordinary men, endowed with supreme intelligence, wisdom 
and authority, and that as a sacred duty which they are 
beginning to construe as a divine right, it behooves them to 
exercise their superior prerogatives by assuming not only 
political dictatorship in the nation, but also leadership over 
citizens, controlling their conduct, regulating their pleas¬ 
ures, formulating their thoughts and directing their opin¬ 
ions. Books, magazine articles and editorials have been 
written in which this lunacy is clearly apparent. A brief 
excerpt from an article written by a man who, by virtue of 
his position as Vice President of one of New York’s largest 
Capitalistic banks can be said to speak as one inspired, will 
suffice to give color to my comment: 

“The leaders and managers of American industry, the 
men who by reason of their abilities hold the positions of 
power and influence in the community, must accept a 
greater responsibility for the common welfare than they 
have felt in the past. If they want society to develop a 
common outlook and spirit they must exert themselves to 
that end. They must show that spirit themselves. They 
must show themselves outside the circle of their own private 
interests and identify themselves with the common interests. 
They must help give that direction and supervision to com¬ 
munity interests which are so much needed. 

‘ ‘ This responsibility they must take whether they like it 
or not. Whatever goes wrong with society for want of 
intelligent guidance and affects the living conditions of the 
people unfavorably, reacts upon business. The average 
man does not think very deeply or reflect very profoundly 
' about causes; he judges mainly by visible results. It is up 
to them to show the common man how to be efficient, to 
make him prosperous, and to satisfy him that he has a stake 
in the country. It is squarely up to them to win the confi¬ 
dence of the masses. Success may not be easy, but in all 
fields the ability to overcome obstacles is one of the condi- 


186 


The New Capitalism 


tions of leadership. The man who cannot measure up to 
the requirements simply fails as a leader,” etc. 5 * * 

Or as John Corbin succinctly put it: “The body and 
the members are powerless without the brain that is strong 
and clear —free to lead, and, when need is —to rule.” 

The Bourbonic Plague 

Let those who have fallen victim to the Bourbonic plague 
of Capitalistic hallucinations hold communion with them¬ 
selves before it is too late. Let them keep in mind what 
mortal illness befell those nobles who suffered from similar 
delusions around A.D. 1789, who, we are told by Taine, had 
arrogated all the prominent positions in the Kingdom, with 
all the advantages accruing thereto, namely, “authority, 
property, honors, or, at the very least, privileges, immun¬ 
ities, favors, pensions, preferences and the like.” Let us 
hope that our modern 11 nobles ’ J who prate of ‘ ‘ capital and 
brains” and boast of their superior wisdom, authority and 
power may not lose their senses even as those who circa 
1789 imagined they were made of a superior kind of clay, 
lost their heads. 

But I am less concerned with Capitalistic Grossenwahn 
—the Capitalistic tendencies, pretentions and boasts, than 
I am with what applies peculiarly to the economic life and 
welfare of the people; and it is to the consideration of those 
particular phases of my subject that I will confine myself 
in this chapter. 

Pouring the Oil of Fact on the Waters of 
Capitalistic Conceit 

To those who, like George E. Roberts and others, assume 
or contend that “brains” reside only in the heads of the 
Capitalistic group; and that business ability and genius 
cannot be developed in anyone not of the Capitalistic group, 
I want to state with all the emphasis possible that—I will 


5 Excerpt from “Wealth—Its Use and Control,” by George E. 

Roberts, Vice President, National City Bank of New York, in Adminis¬ 

tration, The Journal of Business Analysis and Control, January, 1921. 



“Labor, Capital and Brains’’ 


187 


not say nine times out of ten, but six times out of ten—in 
commercial life the actual work is done by the men in the 
ranks, but the credit for it is wholly claimed by those hold¬ 
ing positions of power and influence. Under the System 
devised by the Capitalistic group, the ‘ ‘ underling ’ ’ has no 
right to go over the head of a department; the subordinate 
cannot deal directly with the chief. I know of scores of 
cases where foremen, superintendents, and heads of depart¬ 
ments, take precious good care that no report of merito¬ 
rious or extraordinary work done, shall reach the ears, or 
fall under the notice, of those high in authority, for they 
are jealous, and afraid that unusual ability on the part of 
a subordinate might usher them out of their positions. I 
know of cases where men who gave evidence of possessing 
unusual ability and honesty, were, under one pretext or 
another, persecuted, or summarily dismissed. Indeed all 
the “brains’’ to be found in the Capitalistic Enterpreneur 
group have been recruited from the ranks of the supposed 
brainless. John Oakwood, in an article in The Annalist 
(September 19, 1921) said: 

“The country’s leading banks, say those with resources 
of $100,000,000 or more, nearly as many of which are 
located outside of New York as are in the metropolis, are 
commanded by men whose average age is about fifty-five 
years, who on the average have been in banking about 
thirty years, and who, in the great majority of cases, began 
as messengers or clerks and have worked their way step by 
step in the practical business of banking. A great many 
more of them were born in small towns than in big cities. ’ ’ 6 

Or listen to this from the pen of Roger W. Babson: 

“Were the fathers of these great captains of industry 
college graduates? No. Were the fathers of these great 
captains of industry bankers? No. Were they rich manu¬ 
facturers and merchants? No. These great captains of 
industry, these men who have built America’s greatest rail¬ 
roads, factories and stores, are the sons of poor parents— 

6 “No Financial Moses Need Apply,” by John Oakwood, in The 
Annalist, September 19, 1921. 



188 


The New Capitalism 


the sons of farmers and ministers and wage workers. The 
statistics of this particular study even show that the great 
majority of these industrial builders were the sons of par¬ 
ents whose income averaged less than $1,200 per year. If 
the captains of industry of the last quarter of a century 
came from the ranks of the masses, the captains of industry 
of the next quarter of a century are going to come from 
the same source. The bankers, manufacturers, and mer¬ 
chants of the next generation will not be the sons of the 
bankers, manufacturers and the merchants of today. They 
will be the sons of farmers, professional men and wage 
workers of today.’’ 7 

The Threefold Intent Behind the Slogan 

The threefold intent of the Capitalistic propaganda 
crystalized into the slogan “Labor, Capital and Brains” 
is clearly apparent. It is intended: 

1: To impress upon the public mind that the constituent 
members of the Capitalistic Entrepreneur System are 
entitled to immense rewards for their double possession— 
Capital and Brains. 

2: To send the lesson home to those who work for a 
wage that if it were not for the Capitalistic “brains” 
Labor would be in a sorry plight. 

3: To convey to those who constitute the non-investor 
group that without Capitalistic “brains” the world would 
be in a sad condition and surely go to the demnition bow¬ 
wows. 

As regards the first, namely, that Capital plus Brains is 
entitled to immense rewards, let me go on record once more 
as saying that I have never held nor contended that 
“brains” should go unrewarded. There are those who 
have ten talents and those who have only one talent, and I 
contend that the reward should always be commensurate 
and liberal. But Capitalistic Brains does not seem to be 
satisfied with any decent reward—it wants it all. The 
combination of Capital and Brains is content with nothing 


7 Chicago Daily News, July 16, 1921. 



“Labor, Capital and Brains” 


189 


less than a hundred percent return on its supposed double 
investment. Look at the statistics for Wealth and Income. 

Reflect for a moment on the fact that today probably 
about ten percent of the population owns ninety percent 
of the country’s wealth. A rather liberal reward consider¬ 
ing that as a rule the real brains were furnished, not by 
the Capitalistic crowd, nor members of their families, but 
by generations of brain owners vested in the garb of 
workers. 

Let me ask one question of those who sing the siren song 
“Capital and Brains.’' In 1918 the admitted Capitalistic 
emoluments amounted to seventeen and a half billion. 
How much of this amount was a distinct return on Capital, 
and how much on Brains? Or do the two constitute an 
intimate, endogenous, inseparable hermaphroditic entity. 

With regard to the second intent concealed within the 
Capitalistic slogan “Capital and Brains”—let me quote a 
statement made by Charles M. Schwab: 

“The pressure of large amounts of capital invested in 
industry does not crush the workingman. On the con¬ 
trary, only by large investments can the prosperity of the 
workingman be furthered.” 

Indeed? One begins to wonder how workingmen man¬ 
aged to get along before industries were consolidated and 
combined. Surely Mr. Schwab will admit that workmen 
had jobs before Capitalistic Trusts and combines were 
formed. He will also admit that industries grew and flour¬ 
ished in the years antedating the origin of ‘ ‘ Big Business. ’ ’ 
I should like to see him prove his contention that “only 
by large investments can the prosperity of the workingman 
be furthered.” But before attempting this it might be well 
for Mr. Schwab to read the report of The Interchurch 
World Movement Committee on the steel strike of 1919. 

The other implication that those who labor do not pos¬ 
sess and cannot develop “brains”, I have already suffi¬ 
ciently answered in this chapter. But for emphasis I’ll 
add that there are thousands of men in the ranks every- 


190 


The New Capitalism 


where who have great executive and managerial ability, 
ambition and initiative, who need but an untrammelled 
opportunity to equal and surpass many of the men holding 
positions of power and influence. And they have—what 
many Capitalistic Entrepreneurs—chiefs, executives and 
managers have not—still a sense of honor and of moral 
responsibility—a conscience. 

My answer to the third clear intent of the Capitalistic 
slogan, “Capital and Brains,” is the contents of this book. 
I grant to the Capitalistic Entrepreneurs the possession 
of brains—but brains infected with maggots. To the par¬ 
ticular brand of Capitalistic brains we not only can, but 
must, attribute the wretched economic condition that pre¬ 
vails throughout the world today. 

Who is responsible for thd' steady increase in the cost of 
living during the past twenty years? Who is responsible 
for the depreciation of the wage dollar. Who is responsible 
for the decrease in the purchasing power of money ? Whom 
are we to blame, or whose praises shall we sing, for the 
prolonged business stagnation, and for the unemployment 
of millions of men and women? 

“Brains” 

Brains! Ah, yes, it is a very remarkable kind of 
“brains” that can originate a business system which finds 
it necessary to employ three dollars of capital to produce 
one dollar’s worth of goods; a very special kind of 
“brains” that has succeeded in developing a business sys¬ 
tem necessitating the borrowing of from two to three 
dollars where formerly one sufficed; a most extraordinary 
kind of “brains” that can set in motion and keep in per¬ 
fect running order, for its own exclusive benefit, a busi¬ 
ness machine that compels the public to spend from three 
to four dollars for what could formerly be bought for one 
dollar. 

Hats off, ye non-investors, to the BRAINS that has done 
all this for you! 


CHAPTER XVI 
The Shrinking Dollar 

W E have heard a great deal within the last decade of 
the shrinking dollar, as if the dollar were compara¬ 
ble to the modest violet shrinking blushingly 
from view. Why call it a shrinking dollar, since there are 
a half hundred terms that would more aptly describe its 
evanescent career? For example, you might say that the 
dollar of today, compared with the dollar of former years, 
is lean, or shrivelled, or anemic, or emaciated, or attenuated, 
or debilitated, or lacerated, or mutilated, or emasculated, or 
sick, or stricken, or an invalid, or devitalized, or incapaci¬ 
tated, or deteriorated, or depreciated, or depressed. Any 
of these descriptive terms—just to note a few—will fit the 
case better than shrinking. 

But the economic doctors have a horror of calling a spade 
a spade. They are reluctant to call things by their right 
name. Their innate modesty does not permit them to tell 
the naked truth; to their delicately attuned ears the truth 
is bitter, harsh, ugly and repellant. So as not to disturb 
the peaceful slumber of the expectant relatives, they prefer 
to let the patient writhe in pain on his Procrustean bed. 
And so they prate more or less learnedly of the “shrink¬ 
ing dollar” rather than saying in so many words that 
prices have gone up; and that the going up of prices has 
necessarily reduced the purchasing power of the dollar, 
depressed its value, depreciating it calculably by precisely 
as many cents as prices went up. 

Depreciation of the Wage Dollar 

In 1896 the American dollar was at its best—a perfectly 
healthy dollar; it was worth one hundred cents; it could 


191 


192 


The New Capitalism 


buy a maximum quantity of goods. Then the period of 
overcapitalization began. Almost immediately prices of 
commodities began to ascend, slowly at first, but surely. 
Taking the prices of 1896 as basic we discover that for 
every cent of increase in the aggregate prices of the com¬ 
modities, the wage dollar, i.e., the non-investor's dollar— 
went down by one cent in purchasing power. No finer 
example of the inverse ratio can be f$und than in the phe¬ 
nomena of ascending prices and declining purchasing 
power. 

Appreciation of the Capitalistic Dollar 

But that isn’t the whole story. For every cent of 
decrease in the purchasing power of the wage dollar, i.e., 
the non-investor’s dollar, the Capitalistic dollar increased 
in value one cent. It is far, far from the truth to say that 
shrinkage is predicable of all dollars. Only the wage dollar 
depreciated in value; and because the non-investor’s dollar 
depreciated in value the Capitalistic dollar appreciated in 
value. Again we have another fine example of the inverse 
ratio; besides a splendid illustration of cause and effect. 

The Word of an Authority 

According to Professor Kemmerer the dollar of 1920 had 
only about 27 cents the value of the dollar in 1896. This 
means that in the course of about twenty-five years the 
value, or purchasing power of the wage dollar depreciated 
at the average rate of about three cents a year—a tragedy 
only to those who must spend their entire income for the 
mere privilege of living—for food, clothes, shelter, and the 
sundry things that constitute the minor comforts of life. 
Where did this lost value go ? Whither did it wander ? It 
did not evaporate; it was not blown away; it did not dis¬ 
solve into thin air. No! it entered into the vampire Capi¬ 
talistic dollar. While the wage dollar became weak, and 
wobbly, and emaciated, the Capitalistic dollar waxed big, 
and strong, and lusty. While the wage dollar depreciated 


193 


The Shrinking Dollar 


at the rate of about three cents a year, the Capitalistic 
dollar appreciated at the cumulative rate of about three 
cents a year. 


Figures That Tell the Tale 

The following Table approximately illustrates the simul¬ 
taneous weakening of the wage dollar and strengthening 
of the Capitalistic dollar: 



How the Wage Dollar 

How the Capitalistic 


Depreciated in Pur- 

Dollar Appreciated 


chasing Power 

in Value 


Wage Earner's Dollar 

Capitalistic Dollar 

1896. 

. $1.00 

$1.00 

1897. 

. 0.97 

1.03 

1898. .*. .. 

. 0.94 

1.06 

1899. 

. 0.91 

1.09 

1900. 

. 0.88 

1.12 

1901. 

. 0.85 

1.15 

1902. 

. 0.82 

1.18 

1903. 

. 0.79 

* 1.21 

1904. 

. 0.76 

1.24 

1905. 

. 0.73 

1.27 

1906. 

. 0.70 

1.30 

1907. 

. 0.67 

1.33 

1908. 

. 0.64 

1.36 

1909. 

. 0.61 

1.39 

1910. 

. 0.58 

1.42 

1911. 

. 0.55 

1.45 

1912. 

. 0.52 

1.48 

1913. 

. 0.49 

1.51 

1914. 

. 0.46 

1.54 

1915. 

. 0.43 

1.57 

1916. 

. 0.40 

1.60 

1917. 

. 0.37 

1.63 

1918. 

. 0.34 

1.66 

1919. 

. 0.31 

1.69 

1920. 

. 0.28 

1.72 


For more than a dozen years I have puzzled over the 
phenomenon of the shrinking dollar; for as many years I 
have endeavored to express the shrinkage in words and fig¬ 
ures, and I think I have finally succeeded in doing this to 
the satisfaction of all except those who derive, or have de¬ 
rived, immense material benefits from the transmutation 
that has simultaneously depreciated the wage dollar and 
appreciated the Capitalistic dollar. It goes without saying 



























194 


The New Capitalism 


that many of those who constitute the investor group— 
the darling beneficiaries of the Capitalistic System, who 
prefer to conceal from the world that their sustenance comes 
principally from the loins of their fellowmen; and that 
the major portion of their income or profits is directly de¬ 
rived from the wage earner’s dollar—will vehemently pro¬ 
test against my exposure of the phenomenon showing the 
depreciation of the wage dollar, and the inverse apprecia¬ 
tion of the Capitalistic dollar. ‘ ‘ Why , 5 ’ they will say, ‘ ‘ no 
economist ‘in good standing,’ no statistical expert, no ac¬ 
cepted authority, has ever interpreted the shrinking dollar 
as set forth in this chapter. ’ ’ 

The Philosophy of the Economists 

And they are quite right! No Capitalistic economist, no 
statistical expert, no accepted authority has ever gone to 
the trouble of lucidly stating the facts in the case—neither 
w r ith regard to the “shrinking” dollar, nor with regard to 
many other economic phenomena in which the average man 
and woman is vitally interested. Indeed it can be shown 
that they have gone to great lengths at times, to obscure the 
truth or camouflage economic facts into indecipherability. 

I am not finding fault with the Capitalistic economists, 
“in good standing,” nor with their allies, the statistical 
experts and accepted authorities. I’ll pay them the com¬ 
pliment of saying that they do not make, and never have 
made, any pretentions with regard to the science they pro¬ 
fess—a “science” from which every ethical principle has 
been ruthlessly removed, and every moral consideration 
remorsely eliminated; a “science” that admittedly does 
not concern itself with the welfare of humanity—but only 
with Wealth. 

Proudhon has said that “Political economy, which is re¬ 
garded by many as the philosophy of wealth, is in fact 
nothing but the organized practice of robbery and misery. ’ ’ 

Kuskin expressed the same opinion when he said: “You 
were ordered by the Founder of your religion to love your 
neighbor as yourself. You have founded an entire Science . 


195 


The Shrinking Dollar 

of Political Economy, on what you have stated to be the 
constant instinct of man—the desire to defraud his neigh¬ 
bor. ’ 9 

These are not reckless dicta of extreme or radical men. 
But if you are disposed to hold that they belong to the 
school of extremists, suppose you consider for a moment 
this statement made by N. W. Senior, “the foremost econo¬ 
mist between Ricardo and Mill,” held in greatest esteem 
in his generation, and to this day by economists who claim 
to be “in good standing.” With almost brutal frankness 
Senior boldly declared: “ It is not with happiness but with 
wealth that I am concerned as a political economist; and 
I am not only justified in omitting, but, perhaps, am bound 
to omit, all considerations which have no influence on 
wealth. ’ ’ 

The Wisdom of the Serpent 

Which being the case we can hardly blame economists 
for having put all the emphasis on the shrinking wage 
dollar and entirely ignoring that other phenomenon, the 
expanded Capitalistic dollar. They have admitted the meta¬ 
morphosis of the wage dollar into a 25 cent dollar (approx¬ 
imately) within twenty-five years; it is no part of their 
duty to proclaim to the world that within the same period 
of time the Capitalistic dollar has apotheosized itself into 
a 175 cent dollar. We can hardly expect them to inform 
the men and women workers of the nation (three-fourths 
of whom are in the wage earner or non-investor group) 
that they are being paid with 25 cent dollars, while the 
Capitalistic group is rewarding itself with 175 cent dollars. 
In all the discussions attendant upon wage increases since 
the armistice, I have never come across a single writer 
who even so much as hinted that Labor is being paid with 
depreciated wage dollars, while Capital’s meed is propor¬ 
tioned with appreciated dollars. And yet that truth lies 
flat at the bottom of the whole question. However, I shall 
have more to say on the subject of Wages in Part II of this 
book. 


196 


The New Capitalism 


Make no mistake—the . economists, experts, authorities, 
etc., have the ability to explain the mystery of the High 
Cost of Living. Indeed they could if they would, with 
comparative ease, explain to the world that it is on account 
of the admirable generosity with which the Capitalistic 
group rewards itself, that the purchasing power of the 
wage dollar has shrunk to such sad proportions; and that 
on account of the Capitalistically superinduced “shrink¬ 
age ’ J those who work for a wage must pay nearly four dol¬ 
lars for what formerly cost only one dollar. 


Another Tell-Tale Table 

The following Table, which I have constructed on the 
premises stated, gives an idea of wliat has taken place r 1 


What Could Be Bought 
in 1896 for 

$ .25 . 

.50 . 

.75 . 

1.00 . 

2.00. 

5.00 . 

10.00. 

50.00 . 

75.00 . 

100.00 . 

200.00 . 

250.00 . 

500.00 . 

750.00 . 

1 , 000.00 . 


In 1920 Cost 
Approximately 

. ..$ 1.00 
1.75 

2.50 
3.25 

6.50 
16.25 
32.50 

.. . 162.50 

.. . 243.75 

... 325,00 

.. . 650.00 

.. . 812.00 
.. . 1635.00 
. .. 2457.50 
.. . 3250.00 


A Word of Caution 

When analyzing the above statistics I beg the reader to 
remember these things: 

1: That the comparison is between the years 1896 and 
1920 . It is important to keep this clearly in mind while 
reading this chapter. Some statisticians, when speaking of 

i In order to enaible the reader to grasp the point more easily I 
have taken the liberty to use the twenty-five cents value of the depre¬ 
ciated dollar as basic, rather than the twenty-seven cent dollar 
spoken of by economists. 


















197 


The Shrinking Dollar 

the shrinking dollar, make comparisons between later years, 
for example, between 1914 and 1919. Naturally such com¬ 
putations, based on more recent years, show a lesser degree 
of shrinkage than when the comparison is between years 
more wudely apart. 

2 : That the increase shown applies to living costs in the 
aggregate, and not to single items. It would be absurd to 
say that the article that cost twenty-five cents in 1896 cost 
one dollar in 1920, although beyond a doubt, for some com¬ 
modities the increase was even greater than my figures in¬ 
dicate. 

3 : Under ‘‘living costs’’ I include all living commodities 
—food, clothes, rent, and whatever enters into the volume 
of living goods consumed by an average family, particularly 
by the eighty percent of families I have designated as non¬ 
investors. 

How near my computations are to those of the accepted 
authorities may be judged from the fact that according to 
Dun’s Index Number the wholesale prices of three hundred 
articles in 1896 was $74.32, whereas in 1920 it was $260.41. 
My computation for $75 in 1896 demanding $243.75 in 
1920 is, therefore, not wide of the mark. And when it is 
remembered that Dun’s Index Number is based on whole¬ 
sale prices, while my computation presumes retail prices, 
it is clear that I am exceedingly conservative. 2 Bradstreet’s 
Index Number shows that the prices of 157 commodities, 
which could be bought for $591 in 1896, had risen to $2087 
in February, 1920. 


2 It is to be remembered that most Index Numbers are based on 
wholesale prices. If retail prices were used instead a different result 
would follow. Moreover, they concern themselves only with com¬ 
modities, not with “living - costs,” and take no cognizance of rent 
increases. Nor do they take into consideration that for many of the 
commodities, such as clothes, shoes, all kinds of wearing - material, 
fabrics, textiles, etc., while prices have increased, let us say in round 
numbers, one hundred per cent, quality has been reduced by about 
one-half, thus putting - the average family to the necessity of purchas¬ 
ing - a double quantity. In brief, Price Index Numbers are of pre¬ 
carious value. Certainly they do not show the actual increase or 
decrease in the ag-gregute living costs. 



198 


The New Capitalism 


The Non-Shrinkability of the Capitalistic Dollar 

No Capitalistic economist, statistical expert or accepted 
authority has ever pointed out that the Capitalistic 
dollar is non-shrinkable; ^ that the dollar in the hands 
of a Capitalistic overlord retains its full strength; that 
when Capitalistically employed there is no lost value to be 
noted in the dollar. Let me briefly illustrate the point. 

Fifty thousand John Smiths—each a small salaried man 
—pay out of their meager income, fifty dollars a year as 
premium on a one thousand dollar Life Insurance Policy. 
The Insurance Company invests these $2,500,000 in a new 
building. Let us say the building could have been erected 
in 1896 for $1,250,000. What has raised the cost of the 
building? Increase in cost of material, supplies, etc. But 
the same Capitalistic principals who own or control the 
Insurance Company, also have a monopoly of all the build¬ 
ing materials, supplies, etc. Consequently they pay the big¬ 
ger price to themselves. And the bigger price, based sup¬ 
posedly on a bigger investment, yields them a bigger profit. 
Then there are the higher freight rates; but the same group 
that owns or controls the Insurance Company, and the 
materials and the supplies, also owns the railroads; there¬ 
fore is directly benefited by the higher freight rates. 3 
(Don’t interrupt me with the stock explanation that mate¬ 
rials, increases in the price of supplies, freight, etc., are due 
to increase in wages. It is just the other way around. 
Moreover, I shall show in the second half of my book, that 
whatever increase in wages Labor has had was invariably 
taken away again through the medium of still higher 
prices.) 

Now let us assume that the borrowing of money enters 
into the construction of the building. And let us say that 
on account of the increase in the price of materials and 
supplies, freight rates (and wages, if you will), it is neces¬ 
sary to borrow double the amount the Insurance Company 

3 And I’ll not say a single word about the “Pittsburgh Plus” plan 
at this time. 



The Shrinking Dollar 


199 


would have borrowed in 1896; and therefore the principals 
are paying twice as much interest. But remember the same 
group that owns the Insurance Company, and the railroads, 
and has a monopoly on materials, supplies, etc., also owns 
the banks; and so is the immediate beneficiary of the larger 
borrowings and the higher interest charges. 

Very well! The building, when completed, has an in¬ 
creased value of one hundred percent. Consequently the 
Capitalistic owners of the building can issue bonds for 
double the amount they would have issued in 1896. And 
they reap double the amount of commissions, and double 
the fixed charge—interest. Moreover, the larger bond issue 
increases the borrowing capacity of the holders; for, bonds 
are credit instruments, and accepted by banks as collateral. 

And when the building is ready for occupancy, the Cap¬ 
italistic owners charge their tenants twice as much rent as 
they would have demanded in 1896. Thus they derive twice 
as much income from the building. At no point can it be 
said that the Capitalistic dollar has lost any of its value, 
purchasing, or earning, power. Bigger income, bigger 
profits, are visible everywhere, and raining more profusely 
than ever into the lap of the small Capitalistic group. 

But — 

But when John Smith dies, his $1000 policy will have a 
purchasing power of only $250, measured in the 1896 value; 
the difference—$750—being absorbed by the higher prices 
his widow or family must pay for the needful things of 
life—thanks to the Capitalistic System, controlled and 
manipulated by those to whom the late head of the family 
had been paying his premium of $50 a year regularly. 

Truly there is a “shrinkage” in the dollar, but only 
when it passes out of Capitalistic hands, or is employed in 
other than Capitalistic transactions. Let me give you what 
is probably the most striking illustration of all, and which 
will impress you with the real meaning of “shrinkage.” 



200 


The New Capitalism 


How the “Shrinkage” Affects Savings 

In 1896 the savings depositors had on deposit in savings 
banks of the United States, a total of $1,935,466,468. In 
1896 the dollar had a one hundred cents purchasing power. 

In 1920 the savings depositors had on deposit in the sav¬ 
ings banks of the United States a total of $6,536,596,000. 
But by 1920 the purchasing power of the dollar had shrunk 
to approximately twenty-eight cents. 

Consequently the purchasing power of the $6,536,596,000 
on deposit in 1920 had a purchasing power equivalent to 
$1,830,246,880 in 1896. 

No better illustration of the “shrinkage” in the wage 
dollar than this. In brief, the nearly five billion dollars 
saved during twenty years, gave no increase of purchasing 
power to the owners. 

The amount of money you saved, penny by penny, 
whether you have it in a sock or in a savings bank, has 
today a purchasing power only about one-fourth of what 
it was in 1896. That is to say, what you could have bought 
in 1896 with one dollar of your savings, will take nearly 
four dollars of your savings if purchased today. Nor is 
there any immediate prospect that a change of conditions 
will materially improve the purchasing power either of 
your wages or savings. Nor is there any evidence of 
willingness on the part of the Capitalistic group to materi¬ 
ally increase the purchasing power of your wages or value 
of your savings. On the contrary! If the Capitalistic 
group can get away with it; if it succeeds in its double pur¬ 
pose of increasing its income—interest, dividends, and 
profits—by bringing down wages approximately to the 1914 
level, while maintaining a high level of prices—the purchas¬ 
ing power of your wages and savings will shrink still more. 
Precisely where it will stop it is idle to speculate at this 
time. 


The Shrinking Dollar 


201 


The Most Damnable Capitalistic Device 

In a previous chapter I have stated that the Capitalistic 
System, through sundry clever "devices, extorts about $750 
a year from the average family. But the most ingenious 
Capitalistic device, by the general employment of which 
the $750 is extorted, while at the same time the shrinkage 
of the wage dollar is made to appear as if it were a perfectly 
natural phenomenon—the necessary effect of an irresistable 
cause—is what is known as the Percentage System of 
figuring increases in cost, and which percentage increases 
determine the price of every article of merchandise. 

I have had occasion to denounce this reprehensible prac¬ 
tice a number of times in the past, and shall lose no oppor¬ 
tunity to hold it up to obloquy today. What is wrong with 
the Percentage System of computing increases? Is it not 
perfectly legitimate and fair? Let me show you how it 
works, and then judge for yourself whether it is beneficent 
or otherwise—whether it is fair, or unfair. 

Let us say that the basic price of cattle is $6.00 per hun¬ 
dredweight. Then it raises to, let us say, $12.00. “Aha!” 
says the wholesale slaughterer—“An increase of 100 per¬ 
cent! I must increase my price to the retail dealer 100 
percent —plus an additional profit on the increase.” 

The retail dealer gets his invoice, looks it over and says: 
“Aha, an increase of 100 percent! I must raise my price 
to the consumer 100 percent , plus, of course, a profit on 
the increase.” 

And so through the agency of the Percentage System of 
figuring increases of prices the consumer is compelled to 
pay three separate 100 percent increases (and sometimes 
more than three). Do you wonder any longer at the present 
“high level of prices” for all the commodities—food, rent, 
clothes, shoes, coal, steel, in brief every article that enters 
into living costs? 

Here you have the principle and the modus operandi of 
the Percentage System of figuring increases, now univer¬ 
sally used, and supposed to be perfectly legitimate, set forth. 


202 


The New Capitalism 


I call it the most damnable of all Capitalistic devices. And 
yet, so far as I know, it has never been challenged. In all 
these years I have never once, in any financial, commercial, 
or trade paper, nor from any public or after-dinner speaker, 
nor statistical expert, nor professor of economics, nor 
skilled mathematician, nor any text book on cost account¬ 
ing, read or heard so much as a whisper of protest against 
nor exposure of, this blatant sophistry and damnable 
humbug. 

The Percentage System is essentially a pyramiding sys¬ 
tem, and I for one, demand its abrogation as a matter of 
simple justice. Take any commodity—coal, for example: 
add to the 1914 price all the actual increases computed in 
dollars and cents —wages of miners, insurance, taxes and 
sundry items that can be legitimately included in “cost of 
production”—and note the difference between the cent sys¬ 
tem of figuring increases and the Percentage System. 

But I shall have more to say on this subject in Part II 
of this book. For the present I ’ll merely say that the uni¬ 
versal discontinuance of the Percentage System and the 
adoption of the cent system alone, would quickly bring 
down prices to a normal and decent level, and forever make 
impossible violent price fluctuations. Besides the shrinking 
wage dollar would cease shrinking, and regain a goodly 
portion of its pristine vigor. 


CHAPTER XVII 

The Ameiucax Standard of Living 


W E frequently hear it said, generally by those who 
never look below the surface of things, who give no 
serious thought nor study to any subject, whose 
reading is confined to a desultory perusal of the daily 
papers (gorging themselves on headlines), whose scientific 
knowledge or intelligent understanding of economic prob¬ 
lems is nil, whose opinions are based on casual observations 
in their own restricted circle, whose views of life are derived 
from their own limited experience, who base all their con¬ 
clusions on a few cases known to them, or their own par¬ 
ticular case, that the American Standard of living is the 
highest in the world. By that is meant that the wage earn¬ 
ers in the United States receive higher wages, eat better 
food, wear better clothes, live in better houses, and amid 
better surroundings, enjoying more comforts and even some 
luxuries; in brief that, generally speaking, they are better 
off than the wage earners of Europe and other countries. 

In order to save time and space let us accept the state¬ 
ment without cavil or without pausing to analyze it—as if 
it were and always had been, literally true. Let us say that 
the American Standard of living is the highest in the world, 
and that the economic condition of the wage earners of the 
United States is superior to that of the workers of Europe, 
or Asia, or Mexico. 

Organized Labor Established the Standard 

But why is the American Standard of living higher than 
the standard of any other people? The answer comes 
naturally: because wages are higher. And why are wages 


203 


204 


The New Capitalism 


higher ? The answer is simple: because organized wage 
earners insisted that they shall receive a fairly decent 
recompense for their labor. It was their persistence alone 
that has given us what is called the American Standard of 
living—a standard admittedly somewhat higher than the 
standard of European countries. For our “higher stand¬ 
ard of living” certainly no thanks whatever is due to the 
Capitalistic group, who from the beginning, year in and 
year out, fought against every demand for better wages; 
and who granted wage increases only reluctantly and 
grudgingly, and that, too, in spite of the fact that they 
had invariably nullified the benefits of each wage increase 
by a previous increase in the prices of their commodities. 

But Organized Capital Claims the Credit 

It cannot be denied that our higher standard is the 
result of organized Labor's stubborn and often bitter fight 
for higher wages—to that and that alone. Notwithstanding 
which provable fact the Capitalistic group has for years 
claimed the credit, as if our “higher standard” had been 
of their making—a gratuitous gift graciously bestowed 
upon us out of the plenitude of their generosity. 

For example, James J. Hill, in his “Highways of Prog¬ 
ress” 1 (p. 122) says: “So far as modern industrial meth¬ 
ods are concerned we may fairly say that their net result 
has been to cheapen production, and thus place more of the 
comforts of life within the reach of the people.” Mr. Hill 
also contended that big business combinations and conse¬ 
quent lower cost of production 2 inevitably yield lower 
prices and higher wages, and therefore “cheaper and more 
abundant food, shelter and clothing,” etc. 


1 Published in 1912, Doubleday Page & Co., New York. 

2 It can be proved that generally speaking big combinations did not 
lower cost of production ; on the contrary raised it considerably. But 
assuming that they did “lower cost of production,” no benefit accrued 
to the public from the reduction ; just the reverse. 



The American Standard of Living 205 
Shall the Standard Be Maintained? 

Not to Capital, but to organized Labor, belongs the full 
credit for having established what it pleases many to call 
the American Standard of living. Indeed the present bitter 
fight between organized Labor and organized Capital, more 
properly speaking, between organized wage earners and the 
organized Capitalistic group, revolves around the question 
whether the American Standard of living shall be main¬ 
tained, or whether it shall be reduced to the admittedly 
lower European standard; and ultimately to the low Ori¬ 
ental standard. The Capitalistic group has demanded that 
the American Standard shall no longer be maintained; and 
organized Labor is fighting for its maintenance. Who will 
win? Organized Capital or organized Labor? It must be 
admitted that thus far organized Capital has nothing but 
victories to report. Indeed it may be truly said that organ¬ 
ized Capital has been brilliantly successful. 

Lowering the Standard 

I cannot follow the fight step for step, and shall, there¬ 
fore, content myself with noting a few of the obvious results 
thus far obtained by organized Capital. 

The Department of Labor in the ‘ * Monthly Labor 
Review,” July, 1920, gives an analysis of some of the 
effects of increased cost of living on family budgets. It 
found, among other things, that there was a less quantity 
of fresh beef, fresh pork, salt pork and poultry purchased 
in 1918-19 than in 1901. “In many cases the decrease in 
quantity is striking, such, for instance, as in fresh pork 
from 87 pounds in North Atlantic States in 1901, to 19 
pounds in New York, and 22 pounds in Portland, Me., in 
1918-19.” Decreases with regard to the consumption of 
many other articles of food are noted, among them eggs, 
milk, butter, lard and sugar. Making a comparison of the 
total number of pounds of food purchased in 1918-19 by 
the standard family in each of the five North Atlantic 
cities, the analysis shows that: “In none of the cities listed 


206 


The New Capitalism 


in the report does the total reach that of the health and 
decency budget of the Bureau of Labor Statistics ,' 1 and 
that “the food actually consumed in these cities of the 
North Atlantic group falls considerably below the 3,500 
calories generally recognized as the standard by food 
experts. ’ ’ 

Those who refuse to grasp the significance of the fore¬ 
going will, perhaps, be able to see a little light when they 
ponder over this: 

“Dr. Wood of Columbia University, after an exhaustive 
investigation, informs the public that 25 percent of the 
20,000,000 school children of the United States are imper¬ 
fectly nourished. ’ ’ 3 


The Difficulty of Making Ends Meet 

The United States Department of Labor, during 1921, 
published a number of tables pertaining to changes in the 
cost of living in some of the big cities. From the report 
issued June 20th (the day on which I am writing this) 
covering ten cities, I give the expenditure data pertaining 
to the first city on the list, viz., Baltimore, Md.: 


Items of 
Expenditure 

Food. 

Clothing. 

Housing. 

Fuel and Light. 

Furniture and Furnishings 
Miscellaneous . 


Percent of 
Total Expenditure 

_ 42.0 

_ 15.0 

_ 14.0 

.... 5.0 

.... 4.3 

_ 19.7 


These percentages applied to an average family of five 

with a statistical income of $1,500 a year, computed in 

dollars and cents, give the following results: 

Per Year Per Person Per Person Per Person 
(5 Persons) Per Year Per Week Per Day 


Food.$630.00 $126.00 $2.43 35 cts. 

Clothing. 225.00 45.00 .87 12*4 cts. 

Housing. 210.00 42.00 .81 11*4 cts. 

Fuel and Light. 75.00 15.00 .29 4 cts. 

Furniture and Fur things.. 64.50 14.50 .28 4 cts. 

Miscellaneous . 295.50 59.10 1.14 16 cts! 


3 From a pamphlet entitled “Fabric Facts," published by Strang 
Hewat & Co., Inc. 














The American Standard of Living 207 

Surely it is not necessary to make any extended comment 
on these items in the family budget. They speak for them¬ 
selves; they need no lengthy explanation. But since there 
are those who refuse to see the light, no matter how clear 
it may be, let us briefly analyze the first item— Food —for 
which an average family of five, having at least theoretically 
a joint income of $1,500 a year, is supposed to expend $630 
within twelve months. Food prices at the time these sta¬ 
tistics were computed by the Government, were supposed 
to be considerably less than peak prices in 1920; but the 
average housewife, as she scans her weekly expense for 
meats, groceries, vegetables, milk, butter, eggs, ice, etc., 
wonders how she can feed her family on the statistical $630 
a year; for an annual expenditure of $630 for food means 
only about $12.00 a week, which is an allowance of about 
$2.43 per person per week, or about 35 cents a day per 
person. Considering that the average healthy person eats 
three meals a day it means about twelve cents per meal. 
Hats off to the housewife who, considering prevailing prices, 
can, day after day, put up a nourishing meal at an average 
outlay of only about twelve cents per head. Well may the 
husband, who, perhaps, takes his noonday luncheon at some 
cheap restaurant, paying ten cents for a bowl of soup, 
fifteen cents for a sandwich, ten cents for a cup of coffee 
and five cents for a doughnut or two, and twenty-five cents 
for half a cantaloupe, wonder how she does it. 

Thus could I analyze item after item in the household 
budget, but I do not deem it necessary except for those 
who are blind because they do not want to see, and I haven’t 
much space to waste on them. Just one word, however, 
with regard to the “Miscellaneous” item. It would be 
interesting to know what “Miscellaneous” covers. For 
example, assuming that two of the five persons work, and 
that they must both use the street car coming and going, it 
means sixteen cents a day per person, or thirty-two cents 
for both, and counting three hundred days a year it means 


208 


The New Capitalism 


an expenditure of $96 for street car fare alone. 4 We may 
indeed speak of the “high standard of living,” and give 
organized Labor credit for having established it; but God 
knows organized Capital is making us pay the price for its 
maintenance. 

The Item of Rent 

The National Industrial Conference Board Review Re¬ 
port, Number 44 (December, 1921) on “Changes in the 
Cost of Living” says: “Investigations made by authori¬ 
tative agencies indicate that, in normal years preceding the 
war, average wage earners’ families so apportioned their 
expenditures as to spend approximately 43 percent of the 
total for food, 18 percent for shelter, 13 percent for cloth¬ 
ing, 6 percent for fuel and light, and 20 percent for sun¬ 
dries.” Computed in dollars, the item of rent is $270 a 
year, or about $22.50 a month, which is a huge joke. I’ll 
venture the statement that a majority of wage-earners 
residing in the large cities and fair sized towns (unless they 
live in hovels and dumps) are paying considerably more 
than $22.50 a month. I maintain that the average yearly 
rental is nearer $400 than $270 per family. Confining 
myself to conditions in Chicago, rentals, on an average, 
have been raised fully one hundred percent. Thousands of 
families that lived in fairly decent neighborhoods, paying 
perhaps from $35 to $65 a month, were confronted with the 
alternative of paying twice as much rent or moving. As a 
result tens of thousands of families were compelled either 
to move into less desirable neighborhoods, or go into smaller 
quarters, or double up w T ith another family, or break up 
their home altogether, storing their furniture and boarding, 
or retrenching in other things. In many cases to meet the 
situation other members of the family, not infrequently the 
wife and mother, entered the ranks of workers. There are 
no statistics, but it is quite believable that in the aggregate 
throughout the United States hundreds of thousands of 

4 Since the above was written there has been a slight decrease in 
the street car fare in some cities. 



The American Standard of Living 209 

families have been compelled to materially revise their 
standard of living downward—thanks to the well laid and 
cleverly organized plans of the Capitalistic System. I care 
not what arguments you might advance to explain the con¬ 
dition, or minimize the guilt of those responsible. I am, 
for the present, dealing with the fact —that the “American 
Standard” of living has been lowered. 

The Capitalistic System 

There will be those who will say: Why blame the Capital¬ 
istic group for the well nigh universal increase in rents? 
Morgan, Gary, Schwab, et al. do not own the houses in which 
the wage earners live; they are not the landlords. Quite 
true! but they, i.e., the dominant members of the Capital¬ 
istic group, control the banks, which, as is well known, have 
given practically no assistance to the public, and certainly 
made no effort to relieve the distressing situation. More¬ 
over, they control the building materials market, and the 
prices they arbitrarily fixed for them had made building 
prohibitive. But that is not the point. Let us put the 
entire blame for the exorbitant rents on real estate men, 
and landlords. Why did they raise their rents—practically 
doubling them? What was their excuse? On what did 
they base the increase, and how did they compute it? On 
the Capitalistic principles : 1: Inflated valuation; 2 : Arbi¬ 
trary raising of the price of property by selling and resell¬ 
ing; 3: Basing rentals on “replacement” valuation; 4: The 
employment of the Percentage System of figuring increases. 

You may, if you choose, exculpate certain individuals 
within the Capitalistic group—but you cannot exonerate 
the System—you cannot defend the principles, nor the 
methods, no matter by whom practiced, particularly since 
their universal employment is responsible for w T hat I charge 
—namely the compulsory lowering of the American Stand¬ 
ard of .living. 


210 


The New Capitalism 


Holding TJp the European Standard as an Ideal 

The anonymous writer in The Saturday Evening Post 
referred to in a previous chapter, makes a strong point 
of the extravagance of the American wage earner. He can¬ 
not understand why the American born wage earner com¬ 
plains about his wages, considering that foreign born 
workers (he speaks particularly of steel workers) manage 
to save a considerable sum out of their wages. 

Of course the anonymous writer did not go to the trouble 
of explaining that there are millions of foreign born wage 
earners in this country who do not live according to the 
American Standard. Eight or ten or twelve (and more) 
persons—men, women and children—are huddled together 
in two or three squalid rooms in dirty tenement houses, or 
hovels, paying only a nominal rent. Needless to say, in 
some cases the women work; and frequently, also, the chil¬ 
dren. They buy only the cheapest food and clothes. They 
purchase nothing that adds to their creature comforts, 
which being the case it is possible, that out of their aggre¬ 
gate earnings they save a fair portion. But if they lived 
according to what is called the American Standard, if, in¬ 
stead of living in miserable rooms in a crowded tenement 
house or hovel, they lived in decent quarters or neighbor¬ 
hoods ; if they consumed the food that an average American 
consumes, or made any attempt at even ordinary social im¬ 
provement, it is quite likely that the savings of these 
foreigners would be considerably less than our anonymous 
critic would have us believe they are. 

True, many of these foreigners are living in out-of-the- 
way places, far removed from the centers of civilization. 
How they live, the food they eat, the clothes they wear, is 
their own affair. But to hold them up to men and women 
of America as proof that it is possible to save out of wages 
which are demonstrably inadequate for the maintenance of 
of a decent living standard, or as an example worthy of 
emulation, or to intimate that the foreigner is thrifty and 
economical and the average American is shiftless and 


The American Standard of Living 211 

extravagant, is exceeding the speed limit of imagination; 
nay it is the height of impertinence and an insult to every 
decent American man and woman. 

The Truth Without Trimmings 

Perhaps the anonymous author has never read the report 
of the Interchurch World Movement Committee on the 
Steel strike of 1919, according to which: 

‘ 1 The annual earnings of over one-third of all productive 
iron and steel workers were, and have been for years, below 
the level set by the government experts as the minimum of 
subsistence standard for families of five. 

“The annual earnings of 72 percent of all workers were, 
and have been for years, below the level set by government 
experts as the minimum of comfort level for families of 
five. 

“This second standard being the lowest which scientists 
are willing to term an ‘American Standard of living’, it 
follows that nearly three-quarters of the steel workers could 
not earn enough for an American standard of living. 

“The bulk of unskilled steel labor . . . earned less 

than enough for the average family’s minimum subsistence. 

“The bulk of semi-skilled steel workers earned less than 
enough for the average family’s minimum comfort. 

“Skilled steel labor is paid wages disproportionate to 
the earnings of the other two-thirds, thus binding the skilled 
class to the companies and creating division between it and 
the rest of the force. ’ ’ 5 

The Economic Sin of Extravagance 

Let me say it once, and without further parley, that 
during the past twenty years there has crept into the 
nation’s life, like a slimy snake into a fair garden, wanton 
extravagance and sinful wastefulness, a sort of national 
thriftlessness and shiftlessness, for which no economic rem¬ 
edy can be formulated. Nor shall I waste much time in 


5 Chapter IV, “Wages in a No Conference Industry.” 



212 


The New Capitalism 


tearful commiseration for those who, with their eyes wide 
open and of their own free will, are jazzing toward their 
economic doom. There are today, principally in the big 
cities, I know not how many million men and women who 
are living away beyond their means; in better style and in 
better neighborhoods than their income justifies; wearing 
clothes and eating foods they cannot afford; running auto¬ 
mobiles, and into debt, in an endeavor to maintain a false 
social status and a standard of pretense despite an empty 
purse; and their number is growing alarmingly. 

Shall I venture an estimate of the numerical strength of 
this tribe? Is it ten percent of the population—or two 
million families, involving not only the men and women, 
but also the children? Is that too low an estimate? I’ll 
double it if you think I am too conservative. It is imma¬ 
terial! I am less interested in the exact number than in 
the fact that these ten, or more, million thriftless economic 
derelicts, and shiftless social pretenders, are amongst us, 
and we must take some note of them in passing. But this 
is certain—that they belong chiefly to the economic groups 
whose individual earnings are in excess of $1500 a year. 
Few in the classes whose family income is from $500 to 
$1500 are included in the category of the socially pre¬ 
tentious and economically shiftless. 

Let none dare urge that many a girl working in store or 
office, factory or shop, wears silk stockings instead of lisle 
or cotton; or perhaps in an evil moment, or hour of aber¬ 
ration has invested a goodly portion of a year’s wage in a 
fur coat; or that the laundress goes to the movies with her 
children an average of once or twice a week; or that the 
colored porter in the barber shop smokes fifteen cent cigars. 
Let none with glib tongue enumerate the venial economic 
sins of a comparatively small percentage of foolish or 
deluded wage earners, lest I be tempted to bombard him 
with a few leading questions that will glaringly reveal his 
own much more flagrant economic transgressions. The big 
fact to remember is that the earnings of a majority of wage 
earners and lower salaried men and women, are insufficient 


The American Standard of Living 213 

to enable them and their families to live in decent comfort. 
No dust throwing tactics can obscure this fact. Eighty per¬ 
cent of the workers’ families, according to the 1910 statis¬ 
tics, had an income of $1200 or less a year—an amount, 
considering prices of living goods—clothes, food, rent, etc., 
that fell below even the subsistence level. In 1920 the 
eighty percent of the workers’ families may have had an 
average income of $1500 or $1600, but they were in no wise 
economically better olf, for the increase in the cost of living 
w r as greater than the increase in their wages. 

Changing Living Standards 

We sometimes hear it said that the condition of the wage 
earner of today is infinitely superior to that of the laborer 
of several centuries ago; and that he is enjoying comforts 
that a few hundred years ago would have been considered 
luxuries by lords and kings and queens. There may be a 
measure of truth in this, for we read: 

“The houses, even of the rich and great, were, in the 
sixteenth century, mostly destitute of glass windows; and 
the cottages of the poor were not only universally wfithout 
them, but also without chimneys! The luxury of a linen 
shirt was confined to the higher classes. The cloth used by 
the bulk of the people was mostly of home manufacture; 
and, compared with what they now make use of, was at once 
costly, coarse and comfortless. All classes, from the peer 
to the peasant, were universally without many articles the 
daily enjoyment of which is now deemed essential even by 
the poorest individuals. ’ ’ 6 

This, we are told, was the general condition in the six¬ 
teenth century. By the nineteenth century the condition 
of the “rich and great” had improved considerably. But 
what about those who labored for a wage? The following 
from the same work throws some light on this phase of our 
subject: 

6 “A Descriptive and Statistical Account of the British Empire,” by 
J. R. McCulloch. Vol. II, Chap. V. 



214 


The New Capitalism 


“The Rev. Mr. Smith, in his Agricultural Survey of 
Wigtown and Kirkcudbright, published in 1810, gives, on 
authority of persons then living, the following details with 
respect to the state of husbandry, and the condition of the 
people towards the middle of last century: . . . 

“ ‘Their houses were commonly wretched dirty hovels, 
built with stones and mud, thatched with fern and turf; 
without chimneys; filled with smoke; black with soot; hav¬ 
ing low doors, and small holes for windows, with wooden 
shutters, or, in place of these, often stopped with turf, straw, 
or fragments of old clothes. . . . 

“ ‘Nothing but the frugal, penurious manner in which 
the peasantry then lived could have enabled them to subsist 
and pay any rent whatever. Their clothing was of the 
coarsest material; their furniture and gardening utensils 
were often made by themselves; their food always the pro¬ 
duce of their farms, was little expensive, consisting chiefly 
of oatmeal, vegetables, and the produce of the dairy; if a 
little animal food was occasionally added, it was generally 
the refuse of the flock, unfit to be brought to the market. ’ ’ ’ 

Living Standards Around 1850 

John Stuart Mill, quoting from Mr. Holyoake’s History 
of the Rochdale (Cooperative) Society, gives a glimpse of 
the condition of Rochdale working men in the first half of 
the nineteenth century: 

‘ ‘ These crowds of humble working men, who never knew 
before when they put good food in their mouths, whose 
every dinner was adulterated, whose shoes let in the water 
a month too soon, whose waistcoats shone with devil’s dust, 
and whose wives wore calico that would not wash, now buy 
in the markets like millionaires, and as far as fineness of 
food goes, live like lords.” 

One may criticize the rhetoric of Mr. Holyoake for speak¬ 
ing of workmen and their families around 1850 buying 
“like millionaires,” and living “like lords,” but whether 
or no, that is not the important point, as far as we are 


The American Standard of Living 215 

concerned. That their economic condition was materially 
improved is certain; the important point is that no thanks 
was due to their economic overlords; they, the workmen 
themselves, improved their own condition—raised them¬ 
selves to a higher level of living, in spite of their Capital¬ 
istic masters. 

But if the working classes of England “lived like kings” 
in 1850, they were not “living like kings” in the year of 
Our Lord 1922. There are today several million unem¬ 
ployed workers in England who subsist on doles, precisely 
as did the workers a century ago under the Poor Laws. 7 
Does that spell economic progress, or economic retrogres¬ 
sion? Can the workers of England be said to have gone 
forward, or to have been hurled back? 

But if the condition of the wage earners in the United 
States, or elsewhere, is better than that of the laborers of 
a century or two ago, no thanks is due to the “rich and 
great”—to lords or kings or queens, who, history shows, 
w r ould have preferred to keep those who toil in perpetual 
bondage. And if the condition of the nobles and aristocrats 
of today—of lords, kings and queens, is vastly better than 
the condition of the lords, kings and queens of former 
times, who deserves the credit? Who invented the thou¬ 
sand and one things that have added to their comfort? 
Why, those who toiled for a wage, a meager wage, a bare 
living wage! Who has a better right to share in comforts 
than those who created them; who a prior right to the con¬ 
veniences added to life than those, whose skill and inge¬ 
nuity called them into existence? 

A Boast Blasted 

But is the condition of the wage earner of today so much 
better than that of the laborer around 1650, when the labor 
of husband and wife and two children old enough to work 
were required to earn enough to enable them to live? 

7 In 1910-11 over a million people in Great Britain were in the 
poorhouse. 




216 


The New Capitalism 


Let us see. According to the latest published statistics, 
Thirteenth Census of the United States, 1910—in 1910 the 
total number of persons ten years of age and over, engaged 
in the principal gainful occupations, was 38,167,336, of 
which 30,091,564 were males and 8,075,772 were females. 
Of the total number of persons, 10,828,365 were children 
between the ages of ten and fifteen years of age, divided 
as follows: boys—5,464,228; girls—5,364,137. This means 
that more than twenty-five percent of all wage earners are 
children, an important point to remember, especially when 
computing the average income per family. 

It is also well to bear in mind that a steadily increasing 
number of wage earners are women, and that the wages of 
women are considerably less than the wages of the male 
workers; and.the average in all cases below what could be 
called a living wage. It will not be denied that there is a 
growing number of married women who find it necessary to 
join in the labor of the husband in order to make the eco¬ 
nomic ends meet or enable them to keep the ends together. 
This is particularly true of families residing in the big 
cities. Fifteen years ago it might have been said that a 
considerable number of women were entering the ranks of 
wage earners, not so much driven by any economic necessity 
but as a matter of choice, merely that they might live in 
better style and enjoy comforts and pleasures which they 
could not obtain otherwise—a not unnatural desire. But 
this is less markedly true today, for the economic pressure 
has increased tremendously within recent years; and what 
was once a matter of choice has now become more a matter 
of necessity. 

When it becomes necessary in order to maintain a fairly 
decent living standard, for wife and children to enter the 
ranks of wage earners, you have taken an economic step 
back and to the conditions that prevailed two and three 
hundred years ago. When it is necessary, as it was in 1650, 
and as it is today, for wife and children to jointly labor to 


The American Standard of Living 217 

earn the amount required for a family to live, no real eco¬ 
nomic advance has been made; at least there is no great 
reason to boast, or to prate of “ a higher standard of living. ’’ 

The Netu Pauperism 

I think it will not be disputed by anyone that our eco¬ 
nomic system, as far as those who work for a wage or salary 
are concerned, is a from hand to mouth system. What the 
average wage earner receives on Saturday, at most carries 
him through the week. With regard to most wage earners, 
and salaried men and women, it would be entirely safe to 
say that the wages they receive pay not for what they will 
consume, but for what they have already consumed. So, 
then, the economic system is even worse than a from hand 
to mouth system;—it is, more correctly speaking, a debtor 
system—by virtue of which the wage earner is kept con¬ 
stantly in arrears, in a state of chronic indebtedness. He 
consumes before he earns. That, my friends, is poverty of 
the direst kind. That is the New Pauperism established by 
the Capitalistic System. Prom a condition such as this it 
is only a step to the economic coolieism of China and India, 
and the peonage of Mexico. 

It may take a quarter or a half century to complete the 
job of utterly degrading those who work for a wage; and 
unless determined opposition not only by organized Labor, 
but by all those who work for a wage, or its equivalent, in 
brief by the non-investor group is offered, the Capitalistic 
program will succeed beyond a doubt. 


CHAPTER XVIII 
Mane—Tekel—Upharsin 1 

i From the Book of Daniel, Chapter V. (1) Belshazzar the king 
made a great feast to a thousand of his lords, and drank wine before 
the thousand. 

(2) And being now drunk he commanded that they should bring 
the vessels of gold and silver which Nebuchadnezzar his father had 
brought away out of the temple, that was in Jerusalem, and that the 
king and his nobles, and his wives and his concubines, might drink 
in them. 

(3) Then they brought the golden vessels that were taken out of the 
temple of the house of God, which was at Jerusalem, and the king, 
and his princes, his wives, and his concubines, drank in them. 

(4) They drank wine, and praised the gods of gold, and of silver, 
of brass, of iron, of wood, and of stone. 

(5) In the same hour came forth fingers of a man’s hand, and 
wrote over against the candlestick upon the plaster of the wall of 
the king’s palace ; and the king saw the part of the hand that wrote. 

(25) And this is the writing and that was written. Mane, Tekel, 
Upharsin. 

(26) This is the interpretation of the thing: Mane; God hath 
numbered thy kingdom, and finished it. 

(27) Tekel; Thou art weighed in the balances, and found wanting. 

(28) Upharsin; Thy kingdom is divided, and given to the Medes 
and Persians. 

S cores of writers are interpreting the greatly dis¬ 
turbed conditions in the w T orld today as foreshadowing 
the doom of civilization. I do not agree with these 
prophet writers. What is going on throughout the world 
does not signify the breakdown of civilization. It is either 
the prelude to the utter collapse of the Capitalistic System, 
or else a trumpet blast of triumph, heralding its complete 
success. 

Long before the war I had written down this sentence in 
my notebook: 

“The Capitalistic Entrepreneur System can exist for 
fifteen or perhaps twenty years. Then one of two things 
must happen: either it will break down completely; or it 
will continue to maintain itself by increasing the burdens 
upon the people; succeeding in which it will grow mightier 
and more tyrannical with the passing of the years.” 


218 



Mane—Tekel—Upharsin 


219 


My prediction was not merely a guess; it was the answer 
to a simple problem in arithmetic, as simple as the formula 
two plus two makes four. In 1913 I believed (and I think 
I was right)—that the Capitalistic Entrepreneur System 
was in its death throes. During the first dozen years it 
maintained itself by the simple process of raising living 
costs. But since prices of living commodities cannot be 
raised indefinitely without producing a reaction—for there 
is a limit beyond which the patient public will not, or more 
correctly speaking cannot, go; and since the people were 
beginning to murmur and to think aloud, I concluded that 
the end of the System was imminent. Only a war of 
gigantic proportions could save it. And a war came. 

A 

Making the World Safe for Timocracy 

Aristotle tells us that there are three political constitu¬ 
tions: Kingship (or monarchy), aristocracy, and timocracy, 
which latter “people generally call constitutional govern¬ 
ment. ” “Of these,” says Aristotle, “timocracy is the 
w r orst. ’ 1 Timocracy, he explains, ‘ ‘ recognizes the principle 
of wealth.” 

The World War, we were told, was fought to “make the 
world safe for Democracy.” The war did nothing of the 
kind. It made the world safe for TIMOCRACY —for the 
rule of wealth. No historian will ever say, or attempt to 
show, that the World War of 1914-18 was deliberately 
planned and provoked by the Capitalistic groups of Europe 
and the United States working in unison; but the phil¬ 
osopher and student of history will have no difficulty in¬ 
showing that the fates have a way of playing right into 
their hands. The International bankers (among whom the 
United States bankers are dominant at present) have been 
and are, the chief beneficiaries of the recent war. The ill 
wind that fanned the fierce flames of the holocaust, almost 
destroying the whole civilized world, blew good only to 
them. For one thing the Capitalistic System was saved 
from collapse. 


220 


The New Capitalism 

Moreover, the well nigh universal misery and wretched¬ 
ness produced by the war gave it a new lease on life, and a 
tighter grip on the throat of the world; for, when people 
are reduced to poverty and beggary, they are docile and 
submissive. There is a popular belief that hunger makes 
men desperate. That is a fallacy. Show me a nation where 
hunger is chronic and starvation stalks, and I’ll show you 
a nation that is slavish, submissive, docile and unresisting. 
There is no fight in people weakened by hunger. Far from 
being desperate they are grateful for the few husks thrust 
before them as before swine. 

The Capitalistic Program 

But I do not want to pursue this distressingly seductive 
theme further. I must hurry along. What I have said 
above was for the purpose of emphasizing what to my way 
of thinking is the clear intent of the Capitalistic-Mammon- 
istic group constituting the Capitalistic-Mammonistic Sys¬ 
tem in the United States—viz., to reduce the people of the 
United States to a condition of helpless poverty and abject 
servility. That is the Capitalistic program, and quite a 
few numbers have already been played. The performance 
is going well, and with a flourish. Whether I am right or 
wrong in saying that the war saved the Capitalistic System 
from disaster, it is clear that since the war the Capitalistic 
group has acquired an excess of confidence in its impreg¬ 
nability, and a renewal of faith in its ability, not only to 
conserve itself perpetually but to strengthen itself still 
more; and to crush its antagonists. The war and its con¬ 
sequences seem to have beguiled those constituting the Cap¬ 
italistic group into the belief that the Capitalistic System 
they have established, can be made to endure forever. 

Beaching Out for More 

Not content with having acquired control and practical 
ownership of all the profitable properties in the United 
States—the banks, insurance companies, transportation 



Mane—Tekel—U phar sin 


221 


systems, public utilities, natural resources, raw materials, 
and leading industries—they are now reaching out' to 
gobble into their maw those properties overlooked, or con¬ 
sidered of minor importance during the first twenty years 
of their regnancy. Scores of “news” items have appeared 
during the past year clearly indicating what is going on in 
the Capitalistic mind. A brief excerpt from a single article 
by a well known financial writer, B. C. Forbes, will suffice 
to illustrate the point: 

“Wall Street rumor is busy forming two ambitious steel 
combinations, a comprehensive coal consolidation, oil mer¬ 
gers galore, the welding together of various important cop¬ 
per companies, annexations of automobile plants by larger 
ones, and other assimilations of similar units by trusts of 
influential independents. . . . 

“Moreover, our brainiest financial and industrial giants 
do not confine their reckonings to the present surplus of 
productive capacity. They look ahead, and, looking, they 
foresee the time when America will require vastly greater 
productive capacity than now exists. 

“When that time comes—and there is little doubt that 
it is coming—everything will be right for the flotation of 
mergers. 

“If the Washington conference achieves the results Presi¬ 
dent Harding joyously predicts, the way will be paved for 
the summoning of international financial leaders to a con¬ 
ference which may also contrive to evolve workable plans 
for getting the world back on its feet. ’ ,2 

The World on Its Back 

Read with especial care the last paragraph of the above 
item. Note the reference to the “international financial 
leaders,” and who, we are told, may “contrive to evolve 
workable plans for getting the world back on its feet. ’ ’ To 
my humble way of thinking the “international financial 
leaders” (among whom our American Investment bankers 


2 Chicago Heralcl-Examiner, December 13, 1921. 



222 


The New Capitalism 

are conspicuous), are laying plans, not so much to get the 
world back on its feet as to get it on its back, and then to 
plant their feet on its face. 

The war has given our former Investment bankers their 
opportunity to become International bankers; and when 
the “workable plans” of the “international financial lead¬ 
ers” are completed I hold it will be discovered, perhaps 
too late, that a few thousand individuals are holding the 
economic destinies of all the peoples of the earth—includ¬ 
ing the United States—in the hollow of their hand. Euro¬ 
pean students of economic problems have long ago awak¬ 
ened to a realization of what is going on the in the Interna¬ 
tional Capitalistic mind. They speak quite plainly of “the 
international cooperation of Capitalism”—and boldly de¬ 
clare that the plan is “to impose new standards of living 
on the proletariate of Europe.” 3 4 Indeed the economic 
subjugation of the people of Europe is already accom¬ 
plished. There remains but to subdue us. 

The One Hindrance in the Capitalistic Road 

The only obstacle in the way of the complete success of 
the plans of the Capitalistic potentates is organized Labor 
in the United States, and every effort is being made to 
crush it out of existence. One of the chief weapons,—the 
scientific employment of which was made possible by the 
universal havoc produced by the war, against organized 
Labor, is what is called ‘ 1 our ’ ’ foreign investments. Ameri¬ 
can capital is being “invested” by American International 
“investors,” in immense quantities in European industries, 
and in sundry enterprises in other foreign lands. Ameri¬ 
can Capital!—that is to say—the savings of the wage- 
earners, the non-investors, or the credit based on their sav¬ 
ings, is being “invested” (God save the mark!) particu- 

3 M. Philipps Price in Labor Monthly (February 15, 1922), a British 
Magazine of International Labor. 

4 "More than $2,000,000,000 of American capital is now invested 
in foreign enterprises paying dividends of hundreds of millions of 
dollars, and the volume of American investment abroad is increasing 
daily." Arthur Sears Henning, Chicago Tribune, April 2, 1922. Mr. 
Henning, it would seem, is wit?'o-conservative. 



Mane—Tekel—U phar sin 223 

larly in European industries where labor, as everyone 
knows, is poorly rewarded. And in due time the cheaper 
product of the poorly paid European labor, financed with 
the savings of American wage-earners, will be dumped in 
increasing quantities into the American market in competi¬ 
tion with the output of American workmen. As a result 
hundreds of thousands, if not millions, of American work¬ 
men will be subjected to inconstancy of employment, and 
their families to the hardships and misery following en¬ 
forced idleness. Thus a permanently “mobile labor sup¬ 
ply” the great Capitalistic desideratum , will have been 
created, and from that day forward wage workers in the 
United States must accept the low wages that Capital offers. 
Besides, there is no better way of keeping the other millions 
who are fortunate enough to have jobs, quiet and tractable, 
than to keep the alternative of losing their jobs dangling 
constantly before their eyes. 

The “Lodged and Ancient Grudge” Against 

Labor 

Today those who own the nation’s wealth and control 
the nation’s money and credit, more than ever look upon 
those who work for a wage as a necessary evil to be en¬ 
dured only because vast profit accumulations, and the still 
greater concentration of the nation’s wealth in the hands 
of a small coterie of Mammonistic Capitalists demands their 
continued existence. 

Today organized Capital, more than ever, looks upon 
organized Labor as i ‘ the abomination of abominations ’ ’—as 
something intolerable and to be utterly destroyed. Indeed 
the work of destruction which began many years ago has 
progressed to a point where organized Labor, outmaneu- 
vered at every turn, finds itself at this very moment des¬ 
perately hard pressed. 

The fight between Capital and Labor—(it was never any¬ 
thing less than a fight; let those who sincerely believe, or 
insincerely pretend to believe, that Capital and Labor are 



224 


The New Capitalism 


more amiably disposed toward each other, hug the delusion 
to their hearts)—the fight between Capital and Labor is 
getting fiercer and bitterer. We can indeed say, and quite 
truly, that Capital and Labor are getting closer together— 
to each other’s throats; closer to each others hearts, but 
there is a knife in the hand of each. 

“Divide and Conquer” 

Machiavelli’s notorious work, “The Prince” (published 
A. D. 1532), is a “scientific account of the art of acquiring 
and preserving despotic power, and a calm, unvarnished 
and forcible exposition of the means by which tyranny may 
be established and maintained.” “Divide and Conquer!” 
is an old slogan, and the favorite formula of tyrants and 
despots, of politicians and Mammonistic Capitalists who 
have learned from centuries of experience that as long as 
they can keep people from uniting—or better still—quar¬ 
relling among themselves—thus keeping them divided— 
they are safe. 

Capitalism easily surpasses the Machiavellian code in the 
employment of ingenious tactics. First it divided wage 
earners into opposing groups—the organized workers and 
the unorganized workers; and then it subdivided each group 
into contentious factions. In the case of the unorganized 
workers in certain important industries, those of foreign 
birth predominate. The difference of languages keeps them 
not only apart but in turmoil. Whereas in the organized 
groups we find greater homogeneity, but bitter antagonism 
between radicals and conservatives. Besides there are many 
other elements of disintegration and destruction at work. 

The Capitalistic Coup d’etat 

But the greatest achievement of Capitalism is that it has 
succeeded in inaugurating a nation-wide system of espio¬ 
nage. Thousands of hireling agents—“under-cover men” 
or “operatives” they are called, have been hired to mingle 
with workmen, to win their confidence and then to betray 


225 


Mane—Tekel—U pharsin 

them. The information obtained is frequently used to dis¬ 
criminate against members of unions. This is “boring from 
within ” with a vengeance. Espionage has been developed 
into a system, and the results achieved thus far seem to be 
eminently satisfactory to the Capitalistic group. Through 
this system of espionage existing labor unions have been 
disrupted and disorganized. But particularly does it aim 
to make organization impossible. 

The supplementary report recently published by the In¬ 
terchurch World Movement exposes the system and its 
workings, and shows that it is one of the basest inventions 
of modern Capitalism. It shows conclusively that “the 
existence of widespread, well financed, privately incorpo¬ 
rated spy concerns constitutes an integral part of industrial 
corporations’ policy of ‘not dealing with labor unions’ ” 
and that these Capitalistic hireling agents, “under-cover 
men,” or “operatives,” are “inside the plants, or inside 
the unions, or outside both, and during the strike (of 1919) 
spied, secretly denounced, engineered raids and arrests, and 
incited to riot.” Some of these “spies” working for the 
Capitalists, get into the labor unions, assume leadership 
and manage to have themselves elected to important offices. 
Needless to say, to create dissension within unions, and to 
discredit labor organizations in the eyes of the public, is 
one of the big aims of the Capitalistic espionage system. 5 

In addition to the organized Capitalistic “Service” Com¬ 
panies—that is Spy Service placed at the disposal of any 
Capitalistic employer for a price—some of the larger cor¬ 
porations maintain a spy system of their own. Mr. Atter- 
bury, Vice-President of the Pennsylvania lines, testified 
before the Railroad Labor Board (March 22, 1921) that 
his railroad “maintained an extensive spy and espionage 
system among its employees” and that it “had little ars¬ 
enals at various plants where guns and ammunition were 

5 Whoever is interested in this phase of the subject is advised to 
read “Public Opinion and the Steel Strike of 1919”—the supplementary 
Report to the Commission of Inquiry, Interchurch World Movement. 
Published by Harcourt Brace & Co., New York. 




226 


The New Capitalism 


kept.” To maintain this “police” system the Pennsyl¬ 
vania railroad spends $800,000 a year, which, of course, 
the public pays. 

The “Open Shop” Campaign 

For more than twenty years the Capitalistic group has 
been preparing for the time when with little or no danger 
to itself it might give the death blow to organized Labor. 
That time has arrived. The war greatly strengthened the 
Capitalistic group; while its consequences placed those who 
work for a wage into an unfavorable position. And Mam- 
monistic Capitalism came forward with a well thought out 
plan—a thoroughly organized, a thoroughly systematized 
campaign, to render organized Labor hors de combat. 

Needless to say Capitalism did not label its campaign “a 
campaign to destroy organized Labor”; that would have 
been crude, and I, who have observed and studied Capi¬ 
talistic tactics and strategy for many years, am the last one 
to accuse the Machiavellian Capitalistic group of crudeness. 
Not only is the Capitalistic campaign to destroy organized 
Labor not called by its right name, but it is cleverly dis¬ 
guised as a pseudo patriotic movement—“A Campaign for 
the Open Shop—the American Plan,” it is called. And 
‘"Citizens” Committees with millions of dollars at their 
disposal have been formed in strategic places—pledged not 
to let up in the fight until organized Labor is destroyed 
root and branch. 

Superficial students of industrial and economic subjects 
are under the impression that the campaign for an Open 
Shop, which in reality is a fight against organized Labor, 
began towards the end of 1919. They are in error. The 
fight against the closed shop (more properly speaking, 
against organized Labor) began on June 17, 1901. Six 
weeks after the Steel Corporation was organized and began 
operations, a meeting of the executive committee was held 
in New York city. But so as not to be accused of misstate¬ 
ment, or prejudice, let me quote what happened at that 


Mane—Tekel—Upharsin 


227 


meeting from the official report of the Congressional Inves¬ 
tigation of the United States Steel Corporation: 

Labor Unions 

“The attitude of the United States Steel Corporation 
toward organized Labor was early determined. On June 
17, 1901, six weeks after the Steel Corporation was organ¬ 
ized and began operations, a meeting of the executive com¬ 
mittee w T as held in New York City. At this meeting Mr. 
Charles Steele, then a member of the firm of J. P. Morgan 
& Co., and also a member of the executive committee of the 
Steel Corporation, was present. The question of the atti¬ 
tude of the corporation toward organized labor was exten¬ 
sively discussed at this meeting. As a final result of the 
deliberations of the executive committee, Mr. Steele brought 
forward the following proposition, which the records show 
was finally voted upon, and the president of the Steel Cor¬ 
poration instructed to convey it to the presidents of the 
subsidiary companies, to wit: 

“That we are unalterably opposed to any extension 
of union labor and advise subsidiary companies to take 
firm position when these questions come up and say 
that they are not going to recognize it, that is, any ex¬ 
tension of unions in mills where they do not now exist; 
that great care should be taken to prevent trouble, and 
that they promptly report and confer with this corpo¬ 
ration. 

“Following that declaration, the evidence clearly shows 
how American laborers felt. Justly or unjustly, they con¬ 
sidered themselves persona non grata in the works of the 
United States Steel Corporation. Thereafter the great bulk 
of American union laboring men in the iron and steel in¬ 
dustry understood that they were not wanted at the works 
of the United States Steel Corporation. The process of 
filling the places of these union laborers is interesting and 
important to observe. American laborers loyal to their 



228 


The New Capitalism 


unions could not be had. Something had to be done to get 
laborers. Southern Europe was appealed to. Hordes of 
laborers from Southern Europe poured into the United 
States. They were almost entirely from the agricultural 
classes, knew absolutely nothing about iron and steel manu¬ 
facture, but were sufficient to fight the labor unions. They 
were absolutely unskilled, but they could work, especially 
as common laborers. In times of special necessity even ad¬ 
vertisements for foreign help of this class were spread 
broadcast. A sample of these advertisements, which the 
evidence shows were caused to be circulated by subsidiary 
companies of the Steel Corporation, is as follows: 

“ WANTED.—Sixty tin house men, tinners, catchers, and 
helpers to work in open shops; Syrians, Poles, and Rouma¬ 
nians preferred; steady employment and good wages to men 
ivilling to work; fare paid and no fees charged for this 
ivork. Central Employment Bureau, 628 Pennsylvania 
Avenue. 

“This advertisement appeared, as the evidence shows, in 
the Pittsburgh Gazette-Times of July 14, 1909. (See page 
3074 of hearings.) 

‘ ‘ The result is that about eighty percent of th* unskilled 
laborers in the steel and iron business are foreigners of this 
class. With the benefit of a skilled American foreman such 
a crew can work out results in unskilled labor production. 
The profits of this system of labor employment go to the 
Steel Corporation, while the displaced American workman 
shifted as best he could. 

“Following the elimination of Union labor, and the in¬ 
troduction of the above-described foreign laborers, an inves¬ 
tigation was made as to the conditions of laborers, hours of 
labor, home life, etc. As to the hours of labor, the evidence 
before the committee was conclusive that long hours of labor 
prevailed in the iron and steel industry, especially in the 
unskilled departments. Under the direction of the United 
States Commissioner of Labor, a very careful and thorough 
investigation as to the hours of labor in the steel industry 


Mane—Tekel—Upkarsin 229 

has been made. From this official report we quote without 
comment: 

“During May, 1910, the period covered by this investi¬ 
gation into the steel industry, 50,000 persons, or 20 percent 
of the 153,000 employees of the blast furnaces, steel works, 
and rolling mills covered by this report, customarily worked 
seven days per week, and 20 percent of them worked 84 
hours or more a week, which, in effect, means a 12 hour 
working day in the week, including Sunday. 

‘ ‘ This hardship of 12 hour days and a 7 day week is still 
further increased by the fact that every week or two weeks, 
as the case may be, when the employees on the day shift 
are transferred to the night shift, and vice versa, employees 
remain on duty without relief either 18 to 24 consecutive 
hours, according to the practice adopted for the change of 
shifts. The most common plan to effect this change of shift 
is to work one shift of employees on the day of change 
through the entire 24 hours, the succeeding shift working 
the regular 12 hours when it comes on duty. (See page 
2837, hearings.) 

“While we deem it unnecssary to quote the testimony of 
other witnesses, it is true, as the testimony shows, that they 
fully corroborate these statements of the United States 
Commissioner, and, in fact, some of the witnesses are much 
stronger in their statements. 

“As to the daily lives and conditions of living of these 
laborers, the testimony taken is voluminous, far too exten¬ 
sive to even summarize in this report. The testimony cer¬ 
tainly shows conditions undesirable, and far below what is 
ordinarily understood to be the American standard of living 
among laborers in our country. Some of the details are 
revolting, both as to sanitary and moral conditions. Taking 
the ordinary family as a unit, the wages paid, even if the 
head of the family is constantly employed, are barely 
enough to provide subsistence.” 6 

6 Quotations from United States Steel Corporation Investigation. 
These living - conditions were found to exist among steel workers in 
the United States Steel Corporation ten years ago. 




230 


The New Capitalism 


The American Plan 

From this excerpt from an official Government report 
you can judge for yourself what is at the bottom of the 
Capitalistic “American Plan.” The present campaign for 
an “American Plan” is but the corollary of that other 
American plan inaugurated by the United States Steel Cor¬ 
poration when in its fight upon organized Labor, more than 
twenty years ago, it began to fill its plants with cheaper 
European labor, replacing native and naturalized Ameri¬ 
can citizens with recent arrivals,—immigrants from all 
parts of Europe. The present “American Plan” is Capi¬ 
tal's last desperate charge upon organized Labor. And 
the hidden design is to reduce all those who labor, whether 
for a wage or salary, to a condition of perpetual servility 
and permanent poverty. 

Dragging Down the Salaried Employees 

Let none imagine that the Capitalistic System intends 
merely to degrade the industrial wage earners to a common 
level. No! The Capitalistic System is thorough; it does 
nothing by halves. Its campaign to “liquidate labor”— 
to cut wages below the decent living level—includes the 
salaried employees. Hundreds of thousands of salaried 
men and women throughout the United States were dis¬ 
charged during the slack period, then hired back at a lower 
salary, or replaced by cheaper help. 

Items such as the following appeared frequently in the 
daily press during the past year: 

“The Pittsburgh Coal Company will make reductions 
of 15 percent on September 1 in the wages of between 3,000 
and 4,000 members of its salaried staff. 5 ’ 

“A 10 percent pay reduction, effective October 1, is an¬ 
nounced by the E. I. DuPont de Nemours Company. The 
cut will affect all salaries from the president down.’* 7 

7 These items appeared in the Chicago Herald-Examiner, August 



231 


Mane—Tekel—Upharsin 

In an article entitled “The White-Collar Job and the 
Big Jolt” by James H. Collins, in The Saturday Evening 
Post (September 3, 1921), a “New York Employment spe¬ 
cialist ’ ’ is quoted. That gentleman divides the workers into 
three great groups—: Industrial, Agricultural and Market¬ 
ing —this latter being composed of those engaged in mer¬ 
cantile trade, clerical and sales work, etc.—in brief the 
salaried class. According to this “specialist”: 

“When re-adjustment comes in the marketing group 
prices will drop, people will be able to buy more with their 
wages, and production will gradually be restored.” The 
“re-adjustment,” of course, has reference to the cutting 
of salaries. 

A brief excerpt from Mr. Collins’ article suffices for the 
present to give point to my statement that the campaign 
to reduce wages includes salaried employees: 

‘ ‘ Reduction of the salaried staffs has proceeded, industry 
by industry, as different lines of business have been affected 
by the depression. It began with silks in the spring of 
1920, ran into clothing and shoes, spread from manufac¬ 
turer to jobber, and jobber to retailer, invaded automobiles 
and farm implements. One industry’s hard times some¬ 
times made brisk times for another line of business, as with 
exporting, where cancellations and accumulated goods in 
foreign ports threw work upon banks and branches abroad. 
But eventually banking organizations were affected, the 
peak of employment being reached in that line about last 
February, when it became necessary to cut bank staffs five 
to ten percent, letting executives go, along with clerical 
workers. 

“Every employment organization, whether semi-public, 
like the Knights of Columbus and the Young Men’s Chris¬ 
tian Association, or the purely private business enterprise, 
reports about the same conditions—more salaried men seek¬ 
ing work than ever before in their history, ten applicants 
for every position, and anxious inquiries from unemployed 
salaried people in other places who imagine that conditions 



232 


The New Capitalism 

are better elsewhere, and want to crowd into the already 
congested cities.” 

Cannot the salaried employees read their doom between 
the lines? 

The One Thing Capitalism Cannot Destroy 

Will the Capitalistic group and System succeed in de¬ 
stroying organized Labor, and reducing all those who labor 
to the ranks of serfs? When we consider what the Capi¬ 
talistic group has already accomplished and that organized 
Labor’s condition has never been so precarious as at pres¬ 
ent, one is tempted to answer the question in the affirma¬ 
tive. 

But in spite of all the seeming successes, in the face of all 
the past Capitalistic victories, I ’ll say with all the emphasis 
I can command, that Mammonistic Capitalism will not suc¬ 
ceed—that it will not triumph. Why ? Because it has over¬ 
looked a very vital point. I ’ll tell you what I mean. 

When M. Clemenceau was urged by some of the French 
deputies to bring about the utter destruction of Germany 
by dismemberment, Clemenceau answered that to dismem¬ 
ber Germany would be an easy task, but that there is one 
thing that he could not hope to succeed in destroying, and 
this one thing is the unity of spirit of the German people. 

“There is no unity deeper than the unity of spirit,” he 
said, “and that unity no human hand can touch. You do 
not create or destroy unity by diplomacy. It is something 
that exists in the hearts of men. We love what we love, we 
hate what we hate. When the moment of peril comes we 
know what side to take; when the call to battle is heard, 
we know where to stand. ’ ’ 8 

This is a lesson of history that the Bourbon Mammon¬ 
istic Capitalists have never learned. If, as the wise states¬ 
man Clemenceau well said, you cannot destroy unity of 
spirit by diplomacy, history shows that it can much less be 
destroyed by violence! It is quite possible that Mammon- 


s The Living Age, July 17, 1920. 



Mane—Tekel—Upliarsin 233 

istic Capitalism will succeed in seriously harassing organ¬ 
ized Labor for a time. Let us go so far as to say that it 
will succeed in crushing it entirely, even trampling it un¬ 
derfoot for a while. But it will be a sorry and brief victory 
for Mammonistic Capitalism, for out of the trials and tribu¬ 
lations to which Mammonistic Capitalism is at present sub¬ 
jecting all those who work for a wage, or salary; out of 
the smouldering embers of their common resentment, there 
will arise, phoenix-like, a spirit of unity and solidarity, and 
a unanimity of action that will break every link in the 
Capitalistic-Mammonistic chain that binds them. Torn and 
tortured, bruised and bleeding,—organized and unorgan¬ 
ized Labor will pick itself up out of the dust and dirt, bind 
up its wounds and retire long enough to let them heal. 
Then, its teeth set, its fists clenched, and its face calmly 
turned toward the future, full panoplied, and accoutered 
as never before, it will emerge for a bigger and mightier 
contest than the world has ever seen. It will have learned 
the secret of its own weakness, w T hich is a disunited front. 
If those who work for a wage, men and women, organized 
and unorganized, will learn this one lesson, their tempo¬ 
rary defeat will turn into a tremendous and lasting victory. 

The Mammonistic Conquest 

Throughout these chapters I have used the word CAPI¬ 
TALISM, not because it accurately described what I have 
in mind, or existing conditions, but because Capitalism 
conveys to the popular intelligence more than its superla¬ 
tive designation MAMMONISM. 

Mammon w T as the Syrian god of riches. The rich, the 
greedy ,the avaricious worshipped at his altar. Capitalistic 
Mammonism, or Mammonistic Capitalism as we know it to¬ 
day, is the sordid greed for wealth; the vulpine hunger for 
riches; a vulturous appetite for profits, a ravenous craving 
for emoluments, a fiendish lust for power, and many other 
things that cannot be described in polite language. 


234 


The New Capitalism 


It must be clear to whosoever has carefully followed me 
thus far, that the Capitalistic-Mammonistic conquest of the 
people of the United States is well nigh completed. A 
small group of Mammonists, who are the nucleus of the 
Capitalistic System—owns the major portion of the na¬ 
tion’s wealth. Moreover, it practically owns and certainly 
controls, the banks, the insurance companies, the railroad 
and transportation systems, the public utilities, the raw 
materials, natural resources and leading industries. By 
virtue of its supreme sovereignty it reaps the biggest por¬ 
tion of the profits derived from the employment of Capital 
and Labor, in whatever enterprises. I will not particularly 
emphasize here that the administration of our Government 
is in a large measure controlled, and its policies dictated, 
by this small Capitalistic-Mammonistic group; however, it 
is even so. But I will emphasize that the destinies of thirty 
million workers, and the fate of sixteen million non-investor 
families, is entirely in the hands of this small group. 

Legitimate Capitalism 

Let none imagine that I am opposed to legitimate Capi¬ 
talism ; I am not! Capital is essential to progress, to life. 
Capital is the prime requisite for business. Without Capi¬ 
tal the wheels of production cannot function; and the car 
of commerce cannot move. No sane man can have any 
quarrel with legitimate Capital, nor take exception to any 
of its legitimate functions, nor begrudge it a fair reward. 
But when Capital ceases its legitimate operations! and 
transcends the respectable limits of decency; when it be¬ 
comes a name for greed and a synonym for cupidity and 
injustice; when the whole concern of those who employ 
it is the quick accumulation of riches regardless of the 
methods used, regardless of the means employed, no mat¬ 
ter whom it injures or whom it hurts, then it reveals itself as 
the monster of Capitalistic Mammonism, and quite natur¬ 
ally we may expect some more or less audible protests from 
its victims. The Capitalism of which I speak in this book 


235 


Mane—Tekel—Upharsin 

is the Mammonistic variety. Capitalism with the rabies. 
It is Capitalistic Mammonism, not Capitalism, that must 
be destroyed. 

My Argument Summarized 

Let it be understood that I have never, and do not now, 
advocate what is sometimes spoken of as an equal division 
of property, or of wealth. Against both of these proposals 
I set my face. I uphold the principle of the doctrine of 
property rights; but I strongly protest against the concen¬ 
tration of all the productive, profitable properties in the 
hands of a few. I will at all times defend the right of the 
individual to hold property, but I favor an economic con¬ 
dition under which the right to have and to hold property 
will be enjoyed by a greater number. 

In brief I summarize my argument into the advocacy 
of an economic system under which those who work for a 
wage will participate in the usufruct of their labor, and 
which participation automatically gives them an oppor¬ 
tunity to save a part of their wages, and invest same in the 
enterprises which their labor makes possible, and their 
patronage profitable. If simple justice is extended to those 
who labor for a wage, Mammonism will come to an end, 
and never more lift its ugly monster head upon the earth. 

“The Established Order” 

There are those who speak of the “established Order” 
as if it were something holy, fashioned by the hand of God 
Himself, and for the exclusive benefit of a few. There is 
no such thing as an established Order. From the beginning 
of the world the “established” Order has changed, pro¬ 
gressively—generally gradually, but sometimes suddenly. 
Thus the Order, that can be said to have been the estab¬ 
lished Order from 1850 to 1900, came to an abrupt end the 
day the United States Steel Corporation was organized; 
and by that act a new Order was created almost over night. 
But this new Order , 11 conceived in sin and brought forth in 



236 


The New Capitalism 


iniquity”—is now old and decrepit and disreputable. Nay, 
it has ceased to be Order at all; it is “the established Dis¬ 
order.” But whether you call it Order or Disorder, it is no 
longer acceptable to a majority of the people. Surely there 
is none so bold as to say that it is the duty of the people 
to support an Order under which all the wealth and all the 
profits flow through myriad streams into the coffers of a 
few hundred or thousand Capitalistic Mammonists. It is 
not the duty of the people to support and make permanent 
an Order under which they are gradually being reduced to 
economic serfdom. Nay, it is their duty to change the 
Order under the tyranny of which they are slowly being 
forced into a condition of poverty and slavery. 

A Bird's Eye View 

If any one doubts the sinister design of the Capitalistic 
Mammonists to reduce the wage earners of the nation to 
servility and economic serfdom, let him consider at least 
a few of the things they have imposed upon us: 

They have depreciated the wage dollar—reduced the pur¬ 
chasing power of money; 

They are compelling us to pay approximately four dol¬ 
lars for what formerly cost one dollar; 

They have given us the High Cost of Living; 

They have compelled us to lower our standard of living, 

-—doubling our rents, and prices of foods, wearing ap¬ 
parel, etc.; 

They have succeeded in establishing conditions by virtue 
of which the income of an average family will be insuffi¬ 
cient to live in decency and comfort; besides compelling an 
increasing number of women and children to enter the 
ranks of wage earners; 

They have cut wages and salaries to a point that will 
make it well nigh impossible for a wage earner to lay aside 
even a small surplus (savings) ; 

Within recent years they have put millions of men and 
women to the necessity of consuming what little surplus 


237 


Mane—Tekel—Upharsin 

they may have managed to save, by dint of thrift and sac¬ 
rifice, in those better times before the Capitalistic-Mam- 
monistic System was fully developed. 

They have foisted upon us a system of from hand to 
mouth existence; 

Thanks to them the average wage earner—the average 
family—is constantly a week or month, or several weeks 
or several months, in arrears; for the wages or salary they 
receive pay not for what they are going to consume, but for 
what they have consumed—and that is Pauperism of the 
direst kind. 

But why lengthen the list of Capitalistic-Mammonistic 
achievements, when a single sentence tells the story. The 
Capitalistic Mammonists have pressed us into the dust. 
Can they keep us there? They can! unless we break their 
stranglehold. And I say it can be broken! It must be 
broken! It will be broken! 

A Strong Cup of Coffee 

Senator Atlee Pomerene, in an address before the Ohio 
State Bankers Association, Cleveland, Ohio, discussed the 
economic problems of the day. 9 * 

He concluded by saying that he had received many let¬ 
ters from his constituents, but one of them, he said, gave 
the cause of the disturbed conditions more tersely and more 
forcefully than all the rest. He said the explanation of 
present conditions is “the country is getting over a big 
drunk.’’ “I am afraid,’’ continued Senator Pomerene , 11 he 
told the truth. Whether we are of the employer or employee 
class, whether we belong to the idle rich or to those who 
are objects of charity, let us all take a strong cup of coffee, 
sober up and work and save. It will clear our vision. It 
will help solve the problems that confront us. ’ ’ 

With all due respect to Senator Pomerene, who, I believe, 
is a well intentioned man—though a mighty poor economist 

9 See Congressional Record, July 15, 1921, p. 4007. Needless to 

say Senator Pomerene discussed his subject from the Capitalistic, not 

from the non-investor’s standpoint. 




238 


The New Capitalism 


—this is the sort of economic nonsense one encounters fre¬ 
quently in these days. No! the country is not just “getting 
over a big drunk.” The country has been on a bestial de¬ 
bauch for more than twenty years, and is at present suffer¬ 
ing from the consequences of its vile excesses and shameful 
immoralities practiced for nearly a quarter of a century. 
A more drastic specific than a “strong cup of coffee” is 
needed. In fact there is no cure known to science for what 
ails the patient. The corruption has progressed too far; it 
has reached the final stage. 

Trouble With a Cup of Coffee 

But apropos of Senator Pomerene’s “strong cup of cof¬ 
fee.” I wonder whether he has ever read that amusing 
book called ‘ ‘ The Peterkin Papers ” ? I read it when I was 
still in my teens. The very first paper is entitled “Trouble 
with a Cup of Coffee. J ’ 

Mrs. Peterkin had just prepared a cup of delicious coffee, 
but absent-mindedly had put salt into it instead of sugar. 
She called her family together and explained the difficulty, 
and asked their advice. Agamemnon, just home from 
college, suggested that they call in the chemist, a most 
learned man. They go to him and state their errand, prom¬ 
ising to pay him in gold. ITe agrees to go with them. Into 
the cup of coffee the chemist puts a half hundred different 
kinds of chemicals. Still the coffee is not fit to drink. They 
pay him for his trouble, and he departs. 

Again the disturbed Peterkins hold council, and they 
decide to call in the herb-woman. She agrees to try her 
skill. Into the spoiled cup of coffee she puts tansy, penny¬ 
royal, caraway seed, spearmint, cloves, sweet marjoram, 
basil and rosemary, wild thyme, catnip, valerian and hops. 
But still the coffee wasn’t fit to drink. She decides that it ’s 
bewitched, and goes home. 

In desperation the Peterkins decide to ask the Lady from 
Philadelphia, a most wise woman. She suggests that they 


Mane—Tekel—Upharsin 239 

throw out the cup of doctored coffee and make a fresh one. 
Delighted, they decide to do so. 

And the moral of this tale is that salt and chemicals and 
herbs have been stirred, for nearly a quarter of a century, 
into the economic coffee—myrrh—which we are supposed 
to drink—not absent-mindedly but deliberately and with 
malice aforethought, by Capitalistic cooks with evil designs 
upon our economic health and social well-being. We mean 
to throw out the cup of coffee with salt, and chemicals and 
herbs in it, and henceforth do our own brewing, according 
to our own formula. 

Scrambled Eggs 

Since Senator Pomerene’s homely remedy has brought us 
into the vicinity of the kitchen. I recall a pertinent question 
asked by the most illustrious of all Capitalistic-Mammonis- 
tic chefs, J. Pierpont Morgan, a few years before his death. 
He admitted that things were pretty badly mixed up, but 
complacently dismissed the whole subject with the query: 
“Can you unscramble eggs?” 

No! we can’t unscramble eggs, but we can fire the cook 
whose sole culinary ability consists in scrambling eggs. The 
country is sick of the continuous, exclusive and excessive 
diet of scrambled eggs that has been forced down its un¬ 
willing throat into its rebellious stomach. Nor is the situa¬ 
tion improved by the discovery that the scrambled eggs 
with which the country has been fed for the last quarter 
of a century, were rotten eggs. 

The terrible grip of Mammonistic Capitalism must be 
broken. Carthago est delenda, cried Cato; and Carthage 
was destroyed. The god Mammon must be dethroned; 
Moloch must be toppled over. 

“Impossiblel” 

“Impossible!” a hundred thousand, perhaps a million, 
or several million, voices will cry in unison. But read the 



240 


The New Capitalism 


following from Carlyle’s essay on “Chartism,” from the 
chapter entitled ‘ ‘ Impossible! ’ ’ 

‘ ‘ ‘ But what are we to do ? ’ ” exclaims the practical man, 
impatiently on every side: “ ‘ Descend from speculation and 
the safe pulpit, down into the rough market-place, and say 
what can be done!’ ”—0, practical man, there seem very 
many things which practice and true manlike effort, in Par¬ 
liament and out of it, might actually avail to do. But the 
first of all things, as already said, is to gird thyself up for 
actual doing; to know that thou actually either must do, or, 
as the Irish say, “come out of that.” 

“It is not a lucky word, this same impossible; no good 
comes of those that have it so often in their mouth. Who 
is he that says always , There is a lion in the wayf Slug¬ 
gard, thou must slay the lion, then; the w r ay has to be 
travelled! . . . 

“It was proved by fluxionary calculus, that steamships 
could never get across from the farthest point of Ireland 
to the nearest of Newfoundland; impelling force, resisting 
force, maximum here, minimum there; by law of Nature, 
and geometric demonstration:—what could be done? The 
Great Western could weigh anchor from Bristol Port; that 
could be done. The Great Western, bounding safe through 
the gullets of the Hudson, threw her cable out on the cap¬ 
stan of New York, and left our still moist paper-demonstra¬ 
tion to dry itself at leisure. ‘Impossible!’ cried Mirabeau to 
his secretary. ‘ Ne me dites jamais ce bete de mot, Never 
name to me that blockhead of a word! ’ 

“To the practical man, therefore, we will repeat that he 
has, as the first thing he can ‘do,’ to gird himself up for 
actual doing; to know well that he is either there to do, or 
not there at all. Once rightly girded up, how many things 
will present themselves as doable which now are not at- 
temptable! ’ ’ 10 


10 “Chartism,” by Thomas Carlyle, Chapter X. 



Mane—Tekel—Upharsin 


241 


The Servile State 

Hilaire Belloc, in his most interesting book, ‘ ‘ The Servile 
State,” graphically describes how by the middle of the 
seventeenth century a dominant few had established them¬ 
selves as the overlords of creation. He speaks of it as “ the 
new wealth”—“with all the realities of power in the hands 
of a small, powerful class of wealthy men, the King still 
surrounded by the fancies and traditions of his old power, 
but in practice a salaried puppet. And in that social world 
which underlies all political appearances, the great domi¬ 
nating note was that a few wealthy families had got hold 
of the bulk of the means of production in England, while 
the same families exercised all local administrative power 
and were, moreover, the Judges, the High Executives, the 
Church and the generals. They quite overshadowed what 
was left of central government in this country. ’ ’ 

“By 1700,” continues Mr. Belloc, “half of the English 
were dispossessed of capital and land. Not one man in two, 
even if you reckon the very small owners, inhabited a home 
of which he was the secure possessor, or tilled land from 
which he could not be turned off. . . . England had 

already become Capitalistic. She had already permitted 
a vast section of her population to become proletarian, and 
it is this, and not the so-called “Industrial Revolution,” a 
later thing, which accounts for the terrible social condi¬ 
tion in which we find ourselves today. 

“In an England thus already cursed with a very large 
proletariat class, and in an England already directed by a 
dominating Capitalist class, possessing the means of pro¬ 
duction, there came a great industrial development. 

“Had that industrial development come upon a people 
economically free, it would have taken a cooperative form. 
Coming as it did upon a people which had already lost its 
economic freedom, it took at its very origin a Capitalistic 
form, and this form it has retained, expanded, and per¬ 
fected throughout two hundred years. 



242 


The New Capitalism 


“It was in England that the Industrial System arose. 
It was in England that all its traditions and habits were 
formed; and because the England in which it arose was 
already a Capitalistic England, modern Industrialism, 
wherever you see it at work today, having spread from 
England, has proceeded upon the Capitalistic model. ’ ’ Etc. 

The Challenge to Mammonistic Capitalism 

Mr. Belloc’s book from which I quoted the foregoing, 
contains many other passages which would throw consid¬ 
erable light on our own economic affairs. But we must con¬ 
tent ourselves for the present to merely emphasize what 
he so admirably discloses, that the desperate economic con¬ 
dition of the world, including, of course, the United States, 
can be directly traced to the dominant ascendancy and 
supreme sovereignty of Mammonistic Capitalism which 
began its operations several centuries ago, and has con¬ 
tinued its deadly work with almost scientific fiendishness 
until today the whole world is, economically speaking, being 
throttled to death. 

The immediate question that presses for an immediate 
answer in the United States (as well as elsewhere), is: Shall 
Mammonistic Capitalism be permitted to tighten its 
stranglehold upon the throats of the people—upon the 
throats of those who work for a wage—who constitute the 
non-investor group; or shall it be compelled to release its 
throttling death grip? 

To merely content ourselves with giving a stentorian 
answer is not enough. Valiant action must accompany our 
words. Great deeds must be performed, such as will bring 
the Capitalistic-Mammonistic group to its senses, if not to 
its knees; and the non-investors—those who work for a 
wage or salary, or the equivalent, into their rightful heri¬ 
tage. 

To point THE WAY is the purpose of the Second Part of 
this book. 


PART II 

THE NEW ORDER 


This world, ’tis true, was made for Caesar 
But for Brutus, too • 


CHAPTER XIX 
“Where There’s a Will 


1 > 

W HEN one begins to look under the surface of the 
Capitalistic Entrepreneur System—a System which 
takes into consideration only the welfare of a com¬ 
paratively small group of individuals, and entirely ignores 
the interests of the non-investor portion of the pub¬ 
lic, one wonders why the eighty million non-investors 
have never made any serious attempt to organize for 
their own protection. I do not mean in a social or political 
way; (the one is impossible; the other unnecessary and 
undesirable, at least for the present) I mean in a purely 
economic way; I mean to protect themselves and their 
families from further exploitation, and save themselves 
from the permanent poverty into which they are slowly, but 
none the less surely, drifting. If ever there was a reason 
for the non-investor group to seriously consider such a step, 
that reason exists today as never before. If ever the neces¬ 
sity for self-protection existed, it is urgent today. What 
the non-investors have lacked to date is leadership, and a 
rational, workable program. No one has ever showed them 
the way, nor pointed out how their economic freedom might 
be won. The purpose of this book is to show them the way; 
let us hope that the leaders will arise among them in due 
time. 

The fundamental weakness of all economic remedies thus 
far proposed, is that they call for group action and strive 
only for group benefits; whereas what the w r orld needs 
today is a program that calls for mass action, the net 
result of which will yield mass benefits. There are eighty 
million men and women who constitute the non-investor 
group. Of this number approximately thirty million are 


245 


246 


The New Capitalism 


engaged in gainful occupations, that is, working for a wage 
or salary, or for a recompense the equivalent of a wage or 
salary. These thirty million men and women workers (Oh, 
yes, there are children included in the number, millions of 
them, more’s the pity and greater the shame—children who 
ought to be in school), represent a tremendous power—a 
power that is now going to waste because unorganized. I 
call upon them to constitute themselves into a unified group. 
I exhort them to combine their scattered strength into a 
formidable power. I urge them to organize themselves into 
an economic unit, which for the purpose of this book I 
shall call THE NEW ORDER. 

The Will to Do 

Have they the will to do it? That is where the people 
are weak. Generations of buffeting have weakened their 
wills, and created a state of mind that has robbed them of 
all initiative—and even of the courage to try. Keeping 
their nose to the grindstone has dulled their vision and 
ruined whatever of keen far-sightedness they may once 
have possessed. The vital energies of their natures have 
been drained by the struggle for existence. So long have 
they stood in open-mouthed wonder at the supposed omnipo¬ 
tence of the organized few that they have lost all conscious¬ 
ness of their own strength. Compelled to wrestle with the 
little, vexatious problems of their daily lives, they have not 
dared to dream, much less venture to attempt the solution, 
of the one supreme problem—their economic independence 
and their social well being. Driven, and accustomed to 
being driven, they have never allowed themselves to think 
of ever being Masters of their own lives, Masters of their 
own fortunes, Masters of their own destinies;—Captains of 
their own finances, Captains of their own industry, Cap¬ 
tains of their own souls. 

“A House Divided Against Itself” 

I have said that we have no caste system in the United 
States; but we have something that is unspeakably worse. 


“Where There’s a Will” 


247 


There is no homogeneity among us. We are split into 
warring camps and quarreling groups, opposing parties 
and fighting factions, along political, social, racial, religious 
and economic lines. There is not a single question on which 
we are united; not a single issue on which we present a solid 
front. And when I speak of we I mean particularly the 
eighty percent composed of wage earners, and salaried men 
and women, constituting the non-investor group. Indeed 
if my plan contemplated organizing a national association 
of the eighty million non-investor population now scat¬ 
tered and disorganized throughout the forty-eight states, I 
would despair, or at least be tempted to set it down as an 
unaccomplishable plan. But the thing that makes such an 
association not only possible but already a partially accom¬ 
plished fact, is the actual existence of the nucleus of the 
New Order, the one power which thus far has saved us from 
sconomic serfdom and through which alone society can be 
re-created. The machinery through which a struggling 
humanity can redeem itself is in running order. 

Organized Labor—the Nucleus of the New Order 

It is not accurate to say that the eighty million non¬ 
investors are entirely unorganized. A part of the non-in¬ 
vestor group is organized. I refer to that portion of the 
eighty million known as organized Labor, or wage earners 
—not all of the wage earners but a considerable number. 
According to the statistics there are in the United States 
approximately thirty million wage earners and salaried men 
and women. Of these it is reported that six or seven mil¬ 
lion are more or less thoroughly organized. The most pow¬ 
erful Labor organization, and the one having the largest 
membership, is the American Federation of Labor, to which 
about four million of wage earners belong. Then there are 
independent Labor organizations, brotherhoods, or unions, 
and amalgamations of workers in specified industries. All 
told the total membership in Labor organizations is approxi¬ 
mately seven and a half million. In other words, about 
one-fourth of the wage earners are organized. It matters 


248 


The New Capitalism 


little as to their precise number; the stress is to be laid 
entirely on the fact that they are organized, imperfectly, 
and not ideally, perhaps, but organized, therefore the 
nucleus of a greater organization. “Aye, there’s the rub!” 
Even though organized Labor numbered only a million 
members I would still say that the nucleus of the New Order 
is in existence today, and able to carry out all the plans I 
have in mind with regard to the NEW CAPITALISM. 

Around this nucleus, it is reasonable to suppose that, 
while it will not be easy in the beginning, yet with per¬ 
sistent effort it will be possible to gather the active support 
and cooperation of a fair percentage of men and women 
engaged in gainful occupations who do not belong to any 
Labor organization, and who have no affiliation whatever 
with organized Labor; for, let me make myself entirely 
clear—the New Order is not to be composed exclusively of 
those who are members of Labor organizations, but is to 
include anyone desirous of lending a helping hand in the 
work of improving economic conditions—of making people 
happier, the world a better place to live in, and life more 
enjoyable. No one will be barred, whatever his rank or 
station in life may be. Wage earner and salaried person; 
property owner or tenant; lawyer, physician, druggist, 
dentist, farmer, shop-keeper, or to whatever occupational 
group each may belong, is eligible to membership. 

A Call to Organized Labor 

But while I have in mind the organization of the non¬ 
investor portion of the population, eighty million men and 
women—sixteen million families—I realize that such an 
organization is well nigh impossible save through the agency 
of organized Labor. Organized Labor is to be the nucleus 
of the greater organization that will shape itself by degrees 
and in due time. Organized Labor has the power, if it will 
but effectively and intelligently use it, to break the back¬ 
bone of the Capitalistic Entrepreneur System. The Capital¬ 
istic Entrepreneur group is not afraid of Labor as at pres¬ 
ent organized, or rather disorganized; it does not stand in 


“Where There’s a Will” 


249 


dread of its power. Indeed the Capitalistic Entrepreneur 
group has rather successfully undermined Labor’s might. 
It has divided those who labor into opposing camps; it has 
corrupted individuals and disrupted groups; and at this 
very moment, is engaged in dealing death blows to all organ¬ 
ized Labor. Organized Labor should need no call from me 
to save itself. For its own sake, then, I cry out to organ¬ 
ized Labor, or what is left of it—save yourselves—and save 
the nation. Your death means the nation’s death! Rouse 
yourselves. Act today; tomorrow it may be too late. 

I do not know whether organized Labor or any organized 
Labor groups will heed my cry or act upon my suggestion, 
but at any rate I shall indulge in that assumption in this 
chapter. I will delude myself into the belief that at least 
five million wage earners are willing to make an effort to 
win economic freedom for themselves, their families, and all 
those not an integral part of the Capitalistic Entrepreneur 
System—for the sixteen million non-investor families. 

The organization of five million wage earners into one 
compact body is the first step. For the purpose of this 
book, and so as to make myself plain, and more easily under¬ 
stood, I am going to imagine the actual existence of the New 
Order, with a membership of five million members, drawn 
entirely from the ranks of organized Labor. For truth to 
tell, unless organized Labor sees the wisdom, or the possi¬ 
bilities, of my plan, and decides to take a hand, there is 
little hope for the non-investors. Things will go on as they 
are, nay, go from bad to worse, until the final crash comes. 

Very well, then! Here we are, five million strong—all 
wage earners—organized, consolidated and co-ordinated 
under the New Order. What is our program ? What steps 
will we take; how will we proceed? 

The Sustaining Props of Capitalistic Supremacy 

In the first part of my book I have endeavored to show 
the dominant position of the Capitalistic Entrepreneurs; 
and the tyranny of the Capitalistic Entrepreneur System. 
I do not consider it necessary to summarize all the points I 


250 


The New Capitalism 


have scored against the Capitalistic Entrepreneur group 
and System, preferring to believe that at least some of the 
things I have written have made an impression and are still 
remembered by the readers. It will suffice to remind the 
readers that the Capitalistic Entrepreneur group is com¬ 
posed of a small number; I care not whether you make it 
four hundred, or four thousand, or four hundred thousand, 
or four million. This compact, powerful group owns and 
controls practically all the “wealth’’ producing properties 
in the United States. Not content with that it has, 
through the device of overcapitalization, inflated the na¬ 
tional wealth by one hundred billion; against which it has 
issued immense quantities of “securities.” On the inflated 
wealth, the people are compelled to pay taxes, rents, divi¬ 
dends and interest. Moreover the giant Capitalistic Entre¬ 
preneurs have a monopoly of the nation’s finances, con¬ 
trolling absolutely, money and credits through their system 
of banks. They have moreover a monopoly of all natural 
resources, raw materials and the leading industries, trans¬ 
portation systems, public utilities, etc. 

All these monopolies and controls are made possible to 
the Capitalistic group first by its control of Capital; and 
second by its control of Labor. If this double control can 
be broken the Capitalistic Entrepreneur System will col¬ 
lapse and sink into the mire of its own rottenness; and the 
people—the wage earners, the non-investors—will come into 
their own. 


The Basic Capital Fund 

In the light of all I have said let me ask: How did the 
Capitalistic Entrepreneurs build up their power? By the 
autocratic use of capital and credit. Whose capital? Our 
capital, for, the Basic Capital Fund of the nation is the 
property of the eleven million savings depositors, most of 
them, it will be admitted, belonging to the non-investor 
group. Indeed it may be well to remind the readers that 
these eleven million savings depositors have on deposit an 


‘‘Where There’s a Will” 


251 


amount greater than the amount of money in circulation. 
On July 1, 1920, the total amount of money in circulation 
was $6,087,555,007; on the same date the 11,427,555 savings 
depositors had a total of $6,536,596,000 in the savings banks 
of the United States— in other words, a half billion dollars 
more than money in circulation. 

The savings of the eleven million savings depositors con¬ 
stitute the nation’s working capital. More accurately 
speaking, the eleven million savings depositors have placed 
their aggregate savings into the hands of the Capitalistic 
Entrepreneur group, which this group is using over and 
over in its various enterprises—monopolizing materials and 
industries, controlling markets, fixing prices—in brief, 
strengthening and enlarging the power of the Capitalistic 
System. 

Savings Bank Philosophy 

The savings depositors receive three, or let us liberally say 
four percent per annum for their savings. The average 
amount of savings per depositor is, let us say $500. Con¬ 
sequently the average savings depositor receives as a reward 
for leaving his money on deposit in Capitalistic banks for 
twelve months, $20.00. Oh, does he? Not much! for, every 
dollar he leaves on deposit is used in the aggregate, by an 
average of five different individuals or corporations, each 
paying an average rate of let us say, five percent, to the 
bank for its use. Every person or corporation using this 
money and paying interest thereon, charges it up to cost 
of production—that is, adds it to the price of the commodi¬ 
ties produced— and the total amount of interest is collected 
from those who purchase the commodities. The savings 
depositor receives $20.00 a year as interest on his sav¬ 
ings; in reality he is penalized three or four times the 
amount he receives as interest, by those who use his money. 

There is something tragically funny about the fact that 
the savings of the wage earners, are the basic working 
capital of the Capitalistic Entrepreneur group and the bul¬ 
wark of the Capitalistic System. It is by the astute and 


252 


The New Capitalism 


unscrupulous use of the savings of eleven million non¬ 
investors of the working group that a comparatively small 
group of men have been enabled to take possession of prac¬ 
tically all the properties in the United States, making rabu- 
lous profits; increasing their wealth enormously, and build¬ 
ing up vast fortunes. It would be amusing, were it not so 
tragic, to reflect that the Capitalistic group is at this very 
moment using the savings of the eleven million non-investor 
depositors to reduce them to a condition of abject servility, 
permanent poverty, and hopeless dependence. 

Capital Needs the Worker’s Savings 

Labor is dependent upon Capital, scream the economists; 
but I say that Capital is dependent not only upon Labor, 
but upon the very savings of the wage earners. It is easy 
to see that if the eleven and a half million savings deposi¬ 
tors each kept his or her money (which, you will admit, is 
their undisputed right) in a sock instead of depositing it 
in the savings banks (which banks are a vital part of the 
Capitalistic Entrepreneur System) the country, to say the 
least, would be in a quandary. Plainly speaking, it cannot 
be denied that the savings of the eleven and a half million 
depositors (mostly non-investors) are not only the nation’s 
basic working capital fund, but the nation’s credit and com¬ 
mercial system is entirely based upon its constant circu¬ 
lation. 

In his book, “Highways of Progress,” 1 James J. Hill 
says: 

11 Of the nearly $4,000,000,000 of deposits in the savings 
banks of this country, the bulk consists of the savings of 
labor; and this represents but a portion of its accumula¬ 
tions. With such resources, the workingmen of the coun¬ 
try might, if they chose, practically control a large part of 
its industry within a few years. From every point of view, 
the workingman, representing the greatest number whose 


i Published 1912, Doubleday Page & Co. 



44 Where There’s a Will” 


253 


good a sound industrial order must seek, appears to be in 
the world of wealth production.” 

If Labor is dependent upon Capital, I’ll say that the 
Basic Capital Fund belongs to Labor, and it is only neces¬ 
sary for Labor to learn how to use this basic fund for its 
own and all the people’s benefit. 

Ye eleven million depositors in savings banks—arouse 
yourselves! Ye unorganized non-investors—pinch your¬ 
selves! Ye are asleep. Ye do not know what is being done; 
ye are unconscious of the plan that is being put into execu¬ 
tion this very moment. Yours are still the six billion dollars 
basic capital; they will not be yours ten or twenty years 
hence if you do not bestir yourselves, for through a less 
wage and a greater increase in the cost of commodities you 
will be compelled gradually to withdraw your savings 
merely to meet your current living expenses. I beseech you, 
do not let the Capitalistic group transfer the six billion 
dollars now deposited to your credit, to its credit, via the 
medium of lower wages and higher living expenses. I have 
no hesitancy in saying that the conspiracy is on to bring this 
condition about. If the Capitalistic group can succeed in 
its iniquitous design your last vestige of hope will be gone. 

The Wage Earners Can Control Capital 

Now what we propose to do is gradually to take control 
of this Basic Capital Fund (indisputably the property of 
non-investors) away from the small group of Capitalistic 
Entrepreneurs and place it under control of the New Order. 
We do not intend to disturb the existing funds. We will, 
for the present, leave them where they are. But all new 
savings, from now on, will be placed into a Central Treas¬ 
ury, or designated banks organized by the New Order, and 

whose officers will be authorized henceforth to confine the 

* 

employment of our savings solely for the best interests of 
the wage earners and the public, and not, as at present, 
permit them to be used by and for the sole benefit of the 
Capitalistic Entrepreneurs. 


254 


The New Capitalism 

Do not get impatient! I haven’t begun to open the 
door; I haven’t even put the key in the lock. The splendors 
concealed within the palace will be fully revealed to you 
in due time! I am striving to make my plan perfectly clear 
to every man and woman of even ordinary intelligence. 
That is why I am throwing rhetoric to the winds, and 
language out of the window. I am not attempting to write 
a literary masterpiece. I have a message for the people, 
not only for the eighty percent of our population but for 
everyone who cares to read. If occasionally I falter in the 
delivery it is because I realize that my audience is not 
accustomed to me, and perhaps incredulous, and some even 
suspicious. If I digress once in a while it is to give them 
time to think over something I have just said. If I hesi¬ 
tate a moment it is not for lack of something to say, but 
because I do not want to overwhelm them with my own 
enthusiasm. 

Creating a Capital Fund Under the New 

Capitalism 

Capital is the prime requisite for any undertaking—it is 
the sine qua non for whatever plans we may have in mind. 
The creation of Capital funds, therefore, is the first and 
most important concern of the New Order In brief, if five 
million persons (members of the New Order—and at the 
same time members of organized Labor) were to agree to 
pay into a certain bank, or banks, which they entirely con¬ 
trol—or shall I say for the present—into a Central Treas¬ 
ury, five dollars a month, for a period of three years, none 
of which is to be used for other purposes than may be 
designated by the Supreme officials of the New Order, it is 
easy to see that this would give us a Basic Capital Fund 
of $300,000,000 the first year; $600,000,000 at the end of 
the second year; and in three years $900,000,000—an 
amount which I deem sufficient to completely break not 
only the Capitalistic Entrepreneur stranglehold, but the 
backbone of the Capitalistic Entrepreneur System of tyr- 


“ Where There’s a Will” 


255 


army and oppression. In ten years, by this simple method, 
three billion dollars would be raised. 

But I am getting ahead of my story. Let me put it this 
way: 

Each of the five million wage earners is to pledge him¬ 
self to pay into a Central Treasury a total of $180 within 
three years; or $60 a year at the rate of $5 a month. This 
is about seventeen cents a day. The Signers of the Declara¬ 
tion of Independence pledged their lives, their fortunes, 
and their sacred honor to win 'political independence for 
the nation. It remains to be seen whether five million wage 
earners can be found who are willing to pledge themselves 
to pay seventeen cents a day for a period of three years, 
to win economic independence for themselves, their families, 
and all the people of the nation. The United States Gov¬ 
ernment, or rather the people, spent about four billion 
dollars to emancipate a few million negro slaves. It re¬ 
mains to be seen whether five million wage earners can be 
found who are willing to invest $60 a year for a period of 
three years to emancipate themselves, their families, and 
the whole nation from a more galling yoke of economic 
slavery. 

Can it be Done? 

It goes without saying that the Capitalistic Entrepreneur 
group will wisely shake its head in unison, and smile while 
saying: “It can’t be done.” But in that case “the wish 
is father to the thought. ’ ’ The plain truth is, the Capital¬ 
istic Entrepreneur group does not want to see it done, and 
hopes that it will not be done. Indeed the Capitalistic 
Entrepreneur group will, by every possible means at its 
command, fair and foul, bitterly oppose and viciously 
attack the New Capitalism; for, if any considerable number 
of men and women were to subscribe each five dollars a 
month for a period of say three years—it would mean the 
doom of the Capitalistic System, of which the Capitalistic 
Entrepreneurs are today the chief beneficiaries. 


256 


The New Capitalism 


If anyone says that it can’t be done, I ask: “Why can’t 
it be done?” For one thing the Capitalistic Entrepreneur 
group has seen to it that the average man and woman who 
works, shall receive no greater wage or salary than is ab¬ 
solutely necessary to subsist. Yet, in spite of this fact, 
eleven million of them have saved, probably most of them 
by denying themselves many little comforts and pleasures, 
six billion dollars, which they have put into the savings 
banks of the United States. This alone, for one thing, 
shows what can be done when there is the will to do it. 

One Way of Doing It 

But to convince the doubting Thomases, and merely to 
show what the non-investor group can do, once it makes 
up its mind, suppose I were to counsel or suggest that the 
eleven million savings depositors, who have deposited to 
their credit in the savings banks of the United States nearly 
six billion dollars, withdraw each one half of the amount 
he or she has on deposit; or that one-half of the savings 
depositors withdraw each the full amount of his or her 
deposits to be used as the Basic Capital Fund under the 
New Capitalism; a fund of three billion dollars would be 
created thereby. 

Of course I advise no such thing; in fact I counsel against 
it: for these two cogent reasons: 

First, the withdrawal of so large an amount, within a 
period of six months or a year, would not only seriously 
cripple but utterly wreck every bank in the United States, 
ruin practically all, or most of the industries, and bring 
on a condition approximating chaos. 

Secondly (and this is what concerns us most), the 
New Order would not be in any position to advantageously 
employ so vast a sum for the time being. Therefore, to 
place at the disposal of the New Order, funds considerablv 
in excess of all practical requirements, would bring no ma¬ 
terial benefits to the owners of said funds. For all imme¬ 
diate and essential purposes of the New Order during the 


‘ 4 Where There’s a Will” 


257 


first three years, an amount not to exceed $300,000,000 a 
year will be entirely ample. 

My counsel to all, who, after reading this book, see the 
advantage and manifold benefits to be derived from the 
New Capitalism, is to leave their deposits in savings banks 
intact for the present, or at least not to draw therefrom 
more than five dollars a month, or a total of sixty dollars 
in twelve months—and to do that only in case they find it 
impossible to save the requisite amount from their present 
earnings, or spare it from whatever funds they may have 
in hand, or immediately available. 

The Proof of the Wage Parner’s Ability 

But the greatest proof of what the people can do, if there 
is real need or inspiration to do it, is to be found in what 
they did during the war. Ten million men and women— 
most of them wage earners, belonging to the non-investor 
group—bought twenty billion dollars worth of Liberty 
bonds. Beyond a doubt wage earners purchased several 
billion dollars worth, paying for them, if not spot cash, at 
least within a few months from date of purchase. In view 
of which fact, will anyone say that it is unthinkable that 
five million men and women could or w r ould invest, for 
their own purposes and benefit, five dollars a month for a 
period of three years? 

Another Positive Proof 

As another proof of what can be done I point to the 
increases in rents during the past three years. Rents 
throughout the United States have been increased from 
fifty to one hundred percent. The point is that the people 
have paid, and are today paying, the increased rental. 
(And by the way—quite parenthetically—if the New Order 
had been in existence and in operation five or six years ago, 
landlords could not have raised rents, and would not have 
dared to demand the outrageous increases they did exact 
and are at present exacting from the people. We would 


258 


The New Capitalism 


have opposed our united strength to their outrageous pro¬ 
cedure. And I wish to go on record today as saying that if 
the New Order comes into existence, and the New Capi¬ 
talism begins to function—rents will be lowered again to 
approximately where they were in 1914. We will have the 
power to compel the landlords to be decent, and we mean 
to use it.) 

But taking the rent situation as it stands todav—the 
average tenant family is paying several hundred dollars a 
year more for the item of rent than formerly. Perhaps to 
pay their increases in rent they are compelled to make many 
sacrifices, but somehow they manage to pay it. Which only 
proves what can be done. 

As Seen From Another Angle 

The evidence of the people’s ability to provide funds for 
whatever purpose, is accumulating. On March 18, 1921, 
P. P. Claxton, National Commissioner of Education, in a 
formal statement made for the purpose of showing that 
the people of the United States spent more money for 
luxuries than for education, published a compilation of 
comparative statistics. In the course of his statement Mr. 
Claxton said: 

“According to Government returns for 1920, the people 
of the United States spent for luxuries in that year 
$22,700,000,000 ; 1 2 more than twenty-one times as much as 
they spent for education only two years before, and 
$6,000,000,000, or thirty percent more than we have spent 
for education in all our history. 


1 d ? ubt that the people spent the enormous sum of $22,700,- 
000,000 in a single year for “luxuries” I will not controvert the Gov- 
ernment’s figures at this time. But I will say that when correlated 
with the statistics for income, investments, increase in wealth, in capi¬ 
tal, in savings, in prices and rents, volume of business, wages and 

salaries and necessary expenditures for the essential living items_ 

that there is a contradiction involved somewhere. Preciselv where it i<? 
not the purpose of this book to discover. 



“Where There’s a Will” 259 

‘ ‘ Expenditures for luxuries in 1920 were as follows: 

For Face Powder, Cosmetics, Perfumes, etc.$ 750,000,000 

Furs . 300,000,000 

Soft Drinks . 350,000,000 

Toilet Soaps. 400,000,000 

Cigarettes . 800,000,000 

Cigars . 510,000,000 

Tobacco and Snuff. 800,000,000 

Jewelry . 500,000,000 

Musical Instruments . 250,000,000 

Luxurious Service. 3,000,000,000 

Autos . 2,000,000,000 

Joy [Rides, Pleasure Resorts and Races. 3,000,000,000 

Cake and Candy. 350,000,000 

Chewing Gum . 50,000,000 

Ice Cream . 250,000,000 

Food Luxuries . 5,000,000,000 


Who can tell what percentage of the aggregate expendi¬ 
ture for luxuries was made by the four million investors 
and their families; and what percentage by the wage earn¬ 
ers—the sixteen million non-investor families? But no 
matter. Will any one, with these figures before him, dare 
to assert that if the people of the United States wanted to 
do it, they could not raise, for the purpose of their economic 
emancipation, or any other purpose they might have in 
mind, an amount considerably in excess of that contem¬ 
plated by my plan? 

What the Capitalists Think 

Whatever may be the actual facts as regards the spending 
proclivity of the general public, it is at least interesting to 
hear what the opinion is in Capitalistic circles with regard 
to the saving ability of the wage earners. In an address s 
entitled ‘ ‘ Real Labor Problems, ’ ’ delivered before the Chi¬ 
cago Association of Commerce, Dr. Charles A. Eaton said: 

“ Where are we to find new resources and capital for 
working the industries of the country ? We have got to find 
it. I tell you, gentlemen, that it is right here in the surplus, 
the savings of the working people of the nation. . . . 

3 Published in the Association’s official organ, Chicago Commerce } 
March 12, 1921. 



















260 


The New Capitalism 


“There are billions of dollars a year ordinarily in the 
savings of workers, and the place for the investment of 
those savings is in the industries of this nation, not to lay 
it in a sock, but in the industries of this nation. . . . 

‘ * I believe that we could turn into the industries of this 
country about two billion dollars a year from that one 
source alone, and every investor so guaranteed and so looked 
after and cared for and educated, would become a tower of 
strength against all the revolutionary doctrines of radical¬ 
ism and stupidities that are sweeping over the world today. 
There is a great field there. 7 ’ 

Dr. Eaton’s address seems to have found favor with 
Chamber of Commerce Associations, under whose auspices 
he has spoken in other cities. When he asks “Where are 
we to find new resources and capital,” etc., and says “We 
have got to find it,” etc., he gives the unpleasant impres¬ 
sion of being a delegated spokesman for, or a component 
member of, the Capitalistic group. At any rate his view’s, 
as expressed in his address on ‘ ‘ Real Labor Problems ’ ’ are 
of the conventional type, and the kind that would win 
approval before audiences composed of members of Cham¬ 
ber of Commerce Associations. I do not know how much 
study Dr. Eaton has given to his subject; nor upon what 
evidence, or statistics, he bases his statement that the work¬ 
ing people can, or actually do, save two billion dollars a 
year. But assuming that he is right with regard to the 
amount —then the raising of less than one-sixth of that 
amount a year, as contemplated by my plan, would seem 
to be comparatively easy and simple. 

Capital Inveigles the Wage Earners 

But whatever the actual amount of the savings of the 
wage earners of the United States, as a matter of fact the 
Capitalistic group has set in motion its machinery gradually 
to transfer their ‘ ‘ savings ’ ’ from the socks and savings ac¬ 
counts into the treasuries of the corporations of the Capital¬ 
istic System, through their schemes of selling stock to their 
employees on easy payment plans. If the recently published 
report of the American Telephone and Telegraph Company, 


“Where There’s a Will” 


261 


(according to which 128,000 of the 186,342 stockholders of 
record on December 31, 1921—were employees of the Bell 
system companies “paying for stock at the rate of a few 
dollars a month”) can be accepted as an indication of the 
Capitalistic design, it is quite likely that within a few years 
there will be more than five million employee stockholders 
in the various corporations, and their holdings in the aggre¬ 
gate will run into the billions. 

It does not seem to occur to the corporation employees 
who invest a part of their wages in the stocks of the corpo¬ 
rations by which they happen to be employed, that they are 
only placing their savings permanently at the disposal of 
the very group that is exploiting them; and that any divi¬ 
dends they may derive from stockholdership in such cor¬ 
porations, will necessarily be paid out of the price increases 
of the very commodities their labor produces. 4 

Capital Proposes 

My proposal that the wage earners of the United States 
create their own capital funds is not so novel as it would 
seem; a suggestion similar to mine was recently made by a 
prominent New York banker, Mr. Otto H. Kahn: 

“The Labor Unions in this country claim a membership 
of 4,500,000. If every member laid aside $1 each week, the 
available sum at the end of one year would amount to 
$234,000,000. That is a pretty tidy sum to start business 
with, in various lines. Personally, I should be glad to see 
the experiment tried and should welcome its success. The 
more workingmen come into direct contact with, and 
acquire direct knowledge of, the realities, the complexities, 
cares and risks of business conduct, the better it will be . 1 ’ 5 


4 According - to the Boston News Bureau there has been a gradual 
but steady decrease in the number of shareholders in some of the 
big corporations during 1922 : 

“The Pennsylvania Railroad reached its record total of stockholders 
last March, at 141,921 ; and since then there has been a consecutive 
string of small monthly decreases involving a reduction by September 
1, of 4,038 holders. The Steel Corporation total of Common share¬ 
holders reached its peak last December, at 107,439, since which time 
there has been a decrease of 11,132.'’ (Literary Digest, Oct. 28, 1922.) 

5 Excerpt from an article “How Shall We Get Back to Better 
Business,” by Otto H. Kahn, in System Magazine, July, 1921. 



262 


The New Capitalism 


As an example of how great minds run in the same chan¬ 
nel, especially if their owners have their habitat in the 
Wall Street district, read this from a Commencement ad¬ 
dress delivered by George E. Roberts, Vice President of the 
National City Bank of New r York: 

“There are 2,000,000 railroad employes in the United 
States now receiving an average of something over $1,500 
per year each. If they would save $50.00 per year each, 
they could buy control of the New York Central Railroad 
system in the first year, and of all the systems running from 
Chicago to the Atlantic Coast within five years, at the pres¬ 
ent market prices of stocks. ’ ’ 6 

Whether these suggestions, made almost simultaneously 
by Messrs. Kahn and Roberts, were offered in good faith 
or not, they serve the purpose of showing that my proposal 
to the wage earners and the non-investors is not without 
merit. The distinctive difference between their proposal 
and mine is that our savings and our capital funds will be 
put into our banks, not into their banks, and to be used by 
us, not by them. That’s the vital difference. 

Has the Wage Earner Faith in Himself 

However, it is clear that the Capitalistic group has great 
faith in the ability of the non-investors to save. It is, there¬ 
fore, inconceivable that the non-investors themselves should 
have less confidence in their ability to save, or hesitate to 
invest their savings for their own benefit, and to their own 
lasting advantage. If no words of mine can persuade them, 
let them be animated by what the workers of England and 
France did for themselves around the ’40s of the last cen¬ 
tury. In 1844, twenty-eight workman formed a cooperative 
association, 7 beginning with a capital of twenty-eight 

6 “Supremacy of the Economic Law,” Commencement Address at 
the Iowa State University, June 15, 1920. 

7 These cooperative societies steadily increased and multiplied, and 
today are found everywhere in England ; indeed they can be said to 
have stood between the English workers and their utter degradation 
and economic enslavement. Recently published statistics show 4,000,000 
members, and their yearly sales amounting to £200,000,000. 



“Where There’s a Will” 


263 


pounds. By 1860 the membership had grown to 3450, and 
their capital to 37,710 pounds. Bastiat in his “Harmonies 
of Political Economy” (published about 1860) speaking of 
the Friendly Societies—“powerful and reciprocal associa¬ 
tion between the working classes” says: “The total number 
of these associations for the United Kingdom amounts to 
33,223, including not less than 3,052,000 individuals—one- 
half of the adult population of Great Britain. . . . Their 
revenue is five millions sterling, and their accumulated cap¬ 
ital amounts to eleven millions and two hundred thousand 
pounds.” 

John Stuart Mill (whose “Principles of Political Econ¬ 
omy” was published in 1848) in Book IV, Chapter VII, 
gives an interesting description of the Industrial Work¬ 
men and Farmers’ Cooperative Association which sprang 
up in France and England about the middle of the nine¬ 
teenth century. In France at that time, the wage of four 
francs a day, or 1200 francs for a three hundred day year, 
was the best paid. Speaking of the Association in France, 
Mill says : (p. 360) 

“The capital of most of the Association was originally 
confined to the few tools belonging to the founders, and the 
small means which could be collected from their savings, or 
which were lent to them by other work-people as poor as 
themselves. In some cases, however, loans of capital were 
made to them by the republican government; but the asso¬ 
ciations which obtained these advances, or at least which 
obtained them before they had already achieved success, 
are, it appears, in general by no means the most prosperous. 
The most striking instances of prosperity are in the case 
of those who had nothing to rely on but their own slender 
means and the small loans of fellow workmen, and who 
lived on bread and water while they devoted the surplus of 
their gains to the foundation of a capital.” 

The Will to Do—Or the Alternative 

Surely what was done by the workmen of England and 
France seventy-five years ago, under exceedingly adverse 


264 


The New Capitalism 


circumstances, can be duplicated by the wage earners of the 
United States today, where conditions are more favorable. 
I do not know how many millions, or billions, of dollars a 
year the thirty odd million men and women workers actu¬ 
ally save in the aggregate out of their wages; but this I do 
know, that they can, and that, too, without half trying, save 
the amount that I consider necessary for the consummation 
and complete success of their economic emancipation under 
the New Capitalism. It may necessitate a sacrifice on the 
part of some, for millions of wage earners have been sub¬ 
jected to a long period of idleness; some have consumed 
their scant surplus (savings) while others have been 
plunged into debt. 

Indeed, unless the wage earners, the non-investors, act 
promptly, and make whatever sacrifices are necessary for 
a year or two or three, to win their economic independence 
—things will go from bad to worse. The hardships to which 
they have been subjected during the past year or two will 
become chronic and irremediable. 

My plan proposes that 5,000,000 organized wage earners 
raise a Basic Capital Fund of $300,000,000 a year, for a 
period of three years. This is about one-twentieth of the 
amount which, according to such authorities as the Iron 
Age and the Chicago Journal of Commerce, the wage earn¬ 
ers lost during 1920-1921 through enforced unemployment. 
Unless those who work for a wage bestir themselves 
promptly they will henceforth sustain losses through en¬ 
forced idleness, aggregating annually billions of dollars. 
It is up to them to decide whether it is to their best inter¬ 
ests to save and invest $300,000,000 a year for a period of 
three years out of their wages, or to sustain a loss of several 
billions a year on account of idleness or irregular employ¬ 
ment, for that is the alternative. 


CHAPTER XX 
There's a Way” 


u 

< 'T'Y THERE there’s a will there’s a way.” I am en- 

%/V/ deavoring in this book to point the way ; the will 
* * must be developed by those most concerned—by 
organized Labor. Organized Labor, as you know, has been 
having a great deal of trouble with organized Capital, and 
it must be admitted that thus far organized Capital has 
had the upper hand. The Capitalistic Entrepreneurs have 
the whip in their hand, holding it more firmly than ever. 
At this very hour they are using it with telling effect, not 
only upon the back of Labor but also upon the backs of 
all the non-investors. 

While I am heralding the New Order as theoretically 
composed of the non-investors, nevertheless I realize that it 
is Labor—organized Labor—that will have to bear the brunt 
of the battle. Organized Labor must do the fighting, this 
time not for itself alone but for the non-investors—the gen¬ 
eral public as well. The plan I am proposing is Labor’s big 
opportunity. It is the only chance it has to win, and with 
the right leadership it will win; not only win but come out 
of the contest victorious and with flying colors. 

Today the formula reads: 

Capital plus Labor Equals Uncontrolled Power. 

If my plan is adopted the formula henceforth will read : 

Labor plus Capital Equals Regulated Strength. 

It is all very well for the economists to say that Capital 
and Labor are dependent upon each other; that without 
Capital, Labor cannot function. Less emphasis is placed by 
them on the indisputable fact that without Labor, Capital 
must corrode. All the capital in the world cannot make the 
machinery of Industry move without Labor. But Labo-r , 


265 



266 


The New Capitalism 


which is the machinery of Industry, can set itself in motion 
by the simple expedient of providing its own capital. Cap¬ 
ital is powerless to supply its own labor; but Labor can 
supply its own capital. 

According to the present arrangement all the capital is 
controlled by one small, organized, coordinated group, while 
the larger group—Labor—has not yet learned the lesson to 
organize and coordinate itself. The small, organized, co¬ 
ordinated group which controls capital, dictates to Labor, 
while Labor, as long as it is unorganized or only partly 
organized, and uncoordinated, does not control its own 
strength, therefore cannot effectually cope with Capital—• 
therefore cannot protect itself. The strongest weapon in 
the hands of Capital is the helplessness of Labor as a force. 
Capital is powerful only as long as it can control capital 
and the forces of labor. Deprived of these advantages, 
Capital becomes helpless—as helpless as Labor is today. 
Labor is weak so long as it allows a small group of Capital¬ 
ists to command its forces and to use its strength. If Labor 
will venture to employ a little of its own capital it will be 
not only strong and mighty, but invulnerable, invincible, 
dominant. Hitherto Labor has been beholden to Capital; 
I propose that henceforth Capital shall be beholden to 
Labor. 

I could go on writing in this fashion by the hour, but to 
do so would only try the patience of the readers and delay 
action. Action is more important than words at this crit¬ 
ical juncture. Let me, therefore, return to my theme. 
Organized Labor, according to my plan, within a year’s 
time will have a fund of $300,000,000; within two years 
$600,000,000; and at the end of three years $900,000,000 at 
its disposal. What is to be done with it? To what use is 
it to be put ? 111 answer without any waste of words: To 
wrest control of the industries, one by one, from the Cap¬ 
italistic Entrepreneurs; to break their tyrannical power; 
to crush the despotism of the Capitalistic-Mammonistie 
Entrepreneur System. 



“There’s a Way” 


267 


To Those Who Cry “Impossible!” 

11 Impossible! ’’ you will say. And I answer that it is not 
impossible. 

Let us assume the existence of our Basic Capital Fund. 
Let us say that the hour for action has arrived. Let us say 
that in a given industry, which we will call X, there are ten 
plants—each employing one thousand workers—a total of 
ten thousand working in the industry. We will open up 
negotiations for one of the plants. We will, of course, 
ascertain whether the owners of any of the plants in the 
industry X are willing to enter into negotiations with us 
for the purchase of their plant. If they are, the officials of 
the New Order will ask for a complete and truthful state¬ 
ment of assets, liabilities, etc., and all data essential to 
ascertain the correct status of their business. We will ask 
them what they consider a fair valuation of their plant and 
business; the amount for which they will sell. Actual value 
alone will be considered by us. A price based upon an 
inflated valuation will not be entertained for a moment. If 
a plant and business is actually worth one million dollars, 
but capitalized for five million, we will offer to take it over 
at the actual, but not at the inflated, valuation. Over¬ 
capitalization will not be recognized by us. We repudiate 
“earning power” as a basis for determining value. That 
is a point upon which there can be no compromise. Under 
no circumstances whatever will we ever offer, or consent to 
take over, a plant at more than a reasonable value. We will 
be fair in our estimate of value; we will make an offer that 
can even be called liberal; we do not propose to be nig¬ 
gardly or to take advantage of anyone; but we will con¬ 
sistently refuse to pay a price in excess of a fair and 
reasonable value. 

If the owners of the plant will accept our fair offer we 
will take over the plant and business on the following 
terms: we will pay a part of the price agreed upon in cash, 
the balance, (for which bonds will be issued) to be paid in 
yearly instalments, with interest at say five percent. Under 



268 


The New Capitalism 


certain conditions we may find it preferable to pay the full 
amount involved in cash. We will, furthermore, offer to 
retain the present managers, clerical and sales force, etc., 
for it will be our plan to proceed with as little disturbance 
of the established routine as possible. All this, of course, 
on the assumption that the business is in a satisfactory con¬ 
dition at the time of negotiations. 

If, however, we cannot come to an understanding within 
a reasonable time, or if our fair offer is declined, that ends 
negotiations for this particular plant for all time. Let me 
emphasize that the New Order intends to negotiate only 
once for a plant. Our fair offer having been rejected, we 
will immediately proceed to erect a plant of our own, equip 
it with machinery, etc., organize the trained forces neces¬ 
sary for the conduct of the business, thoroughly systematize 
the plant, etc., and when we are ready to operate we will 
call for one thousand workers, taking them either all from 
one plant (probably the one with which we have had recent 
negotiations) or else a hundred from each of the ten plants; 
or two hundred from each of five plants—whichever way 
may be deemed best under existing circumstances. 

No general, inflexible rule can be laid down to apply to 
all cases. Each set of conditions must dictate the policy to 
be followed in each individual case. There may be occa¬ 
sions, even, when it may be advisable or desirable not to 
make overtures for the acquisition of an existing plant. It 
may be altogether preferable to simply go ahead and erect 
and equip a plant, and then either to withdraw the required 
number of workers from a single plant, or, by a system of 
distributive requisition, draw a certain quota from each 
of the plants constituting the industry. 

A One-Tenth Control 

In either event, whether we purchase a plant actually 
running or put up a plant of our own, the New Order will 
have complete control of one-tenth of a given industry. 
We will be in competition with the Capitalistic group and 
System. This one-tenth control is the opening wedge! 


“There’s a Way” 


269 


Whether we will go deeper into an industry or enterprise 
will depend entirely upon the Capitalistic Entrepreneurs. 
If they are disposed to be decent and to meet our compe¬ 
tition fairly, we will rest content with the one-tenth control; 
if they become ugly and evince a disposition to fight us 
unfairly, or to crush us, w r e shall then find it necessary to 
enter more aggressively into whatever industry, or indus¬ 
tries, we may have seen fit to engage, and extend our con¬ 
trol, in due time. For the present we do not intend, nor 
will it be necessary, to take over an entire industry in order 
to carry out the immediate purposes of our plan. 

Once we actually engage in an industry, a scientific study 
of everything that enters into it will be made; particularly 
as regards wages and cost of production. I hold that it is 
possible to appreciably bring down costs, not by the Cap¬ 
italistic method of cutting down wages, but simply by elim¬ 
inating or reducing a number of the items which now 
appear as “fixed charges,” “overhead expense,” etc. We 
will have a decided advantage over our competitors with 
regard to some of these items, which now enter into cost, 
for the reason that in every instance we will begin business 
with a clean slate and no handicaps. Our plant will be 
capitalized at its actual, not at an inflated and fictitious 
valuation. And because we will not be overcapitalized we 
shall have no dividends to earn or pay on watered stock— 
on Capital that does not exist. Ample working capital will 
be provided by ourselves, therefore we will have no interest 
to pay to any Capitalistic banks. These are only a few of 
the more obvious advantages, and I mention them merely 
to indicate the possibilities of the New Capitalism under 
the regime of the New Order. 

Verbum Sapientibus Satis 

The Old Order—the present Capitalistic Entrepreneur 
System—quite naturally will not welcome our entrance into 
the sundry fields of industry, now entirely controlled by 
them, with shouts of delight, but rather with a chorus cry 
of rage. Indeed it is a dead certainty that every obstacle 


270 


The New Capitalism 

will be put into our way in an effort to make the carrying 
out of our plan impossible, or at least difficult. But we 
expect that, and will be prepared to counter any attack and 
meet any emergency. 

Incidentally, let me say that if we do not succeed in pur¬ 
chasing a plant already running, and will be put to the 
necessity of building a new plant, it is easy to see that there 
will be an excess of plants—one that is vacant and unpro¬ 
ductive, therefore profitless to the owners—a dead invest¬ 
ment on the hands of the Capitalistic group. Does the 
Capitalistic System relish the prospect? Can the Capital¬ 
istic Entrepreneurs read between the lines? 

The Basic Principle—Plus 

This briefly states the basic principle of my plan with 
regard to the industries, and in which organized wage 
earners are particularly interested; while at the same time 
showing possibilities of its development and application to 
other than industrial lines; besides giving a gentle hint to 
the Capitalistic Entrepreneurs who have deluded them¬ 
selves into the belief that they are invulnerable, and that 
their dominant position is impregnable. 

To clearly state the principle and show the possibilities 
of my plan, and incidentally to sound a note of warning to 
our economic overlords is all I propose to do for the present. 

Not Revealing All 

I have no intention of revealing my whole plan at this 
time, nor how all its details will be carried out. That would 
be the height of folly, for the enemy would learn precisely 
what to expect and would, beyond a doubt, attempt to pre¬ 
pare to meet every emergency. I prefer to keep him guess¬ 
ing, and in the dark. Therefore I am unfolding only as 
much as is good for him and safe for us. I am willing to 
play his game of cards, but I will not show him the cards I 
hold in my hand. 

A general plans his campaign with care and caution, and 
decides on his line of action with boldness and courage, but 



“There’s a Way” 


271 


he does not publish his intentions where the enemy may 
read them and so prepare against them. I will not say 
precisely just how we will proceed. I will not say just how, 
and when, and where we will strike. I will not reveal, at 
this time, what industries we will negotiate for, or enter 
first. Suffice it to make clear that we will go forward, and 
that w r e will strike when we are quite ready, often in most 
unexpected places—and proceed in a manner that cannot 
be foreseen nor prepared against. My whole plan of action 
is decided upon; and all will, in due time, be unfolded to 
those who have a right to hear and who will be entrusted 
with the carrying out of every detail of my plan. 

Besides, these are things that will concern us only after 
we are organized and have created our Basic Capital Fund. 
Consequently I shall confine myself chiefly to a discussion 
of whatever has to do with the essential features of my plan. 

The Supreme Board of Trustees 

I have already stated that the New Order is to be a 
nation wide organization. Needless to say, it will be builded 
around a Central organization, the Supreme officials of 
which will have plenary power; they will be the dominant 
and directing heads and constitute a national Trusteeship 
for the members of the New Order. And since anyone— 
whether an industrial worker or engaged in any other occu¬ 
pation—can become a member of the New Order, I have in 
mind that the national officers shall be composed of say 
twelve men—six chosen from and representing organized 
Labor, and six chosen from and representing that portion 
of the non-investor public engaged in other pursuits. These 
twelve men are the Supreme Board of Trustees. The voting 
power, the directing power, in brief plenary power, rests 
entirely in their hands. The selection of these twelve men 
is of the utmost importance. They must be men of more 
than ordinary intelligence and ability; sincere, unselfish, 
just, of tested integrity, proved rectitude and unwavering 
fidelity; men of principle, character and conscience—the 
sold of honor; men of unquestioned honesty, and, above all, 



272 


The New Capitalism 


incorruptible; in brief, men who will do the right, and who 
are willing to die for what they believe to be the right. 

I have been told that it will not be easy to find twelve 
such men, but I am confident that they can be found. 
Upon these twelve men the success of the New Capitalism 
depends. You may organize, five million, ten million, 
twenty million men and women; you may raise three hun¬ 
dred million, or three billion, or thirty billion of capital, but 
unless the twelve men who are to be “ the head and front 
of the New Order—and into whose hands the welfare of 
eighty million men, women and children is to be entrusted, 
can be found, nothing can be accomplished. Assuming that 
these twelve men can be found and are willing to serve the 
people for nothing more than a reasonable salary—a recom¬ 
pense hardly proportionate to the service they will be ex¬ 
pected to render to the public—an organization of unbreak¬ 
able strength will have been launched. 

Need I stress here that the utmost care will be exercised 
in so organizing that at no time can control be taken away 
from the New Order? My plan guards against every 
eventuality; indeed has taken every possible contingency, 
every exigency that may arise, into consideration. Every 
precaution will be taken. We’ll take no chances of any 
kind. Our stipulations will be clear and clean cut; our con¬ 
tracts iron bound. This one lesson we have learned from 
the Capitalistic Entrepreneurs, and we will use it for the 
benefit of all the people. Plenary Powder, supreme author¬ 
ity, absolute control, and complete stewardship is vested in 
the twelve Supreme officers of the New Order—the Supreme 
Board of Trustees of our Economic Commonwealth. 

A Move in the Bight Direction 

While we may depart from the corporation organization 
methods in vogue today, nevertheless in describing what we 
intend to do or how we intend to proceed, I shall use the 
terms that are current. Consequently I ’ll put it this way. 
Any industry or enterprise into which we may enter, will 
be capitalized at actual value fairly determined. A safe 


‘‘There’s a Way” 


273 


quota of the stock will be common stock. This will be placed 
in trust in the hands of the twelve national Supreme officers, 
constituting the Supreme Board of Trustees. The balance 
of our stock issue will be preferred stock, divided into two 
equal parts. One-half of this preferred stock will be offered 
to those workers within the industry concerned, and to the 
workers (wage earners) in whatever industries they may be 
engaged; the other half will be offered to the general public 
—that is to anyone not engaged in the industries—in brief 
to whoever cares to invest. None will be excluded; and 
there will be no discrimination. 

But since I am assuming that the New Order, for the first 
three years, will be composed probably wholly of organized 
wage earners, let me return to a consideration of their exact 
status under the New Capitalism. You will recall that each 
is to pay into the Treasury of the New Order, five dollars 
a month, or sixty dollars a year, for a period of three 
years. This amount, be it clearly understood, is not to be 
a contribution or donation. Ten dollars a year will be set 
aside as membership fee, to be used as I shall presently 
explain; and fifty dollars will be considered as an invest¬ 
ment and treated as such. For every fifty dollars a Cer¬ 
tificate of Deposit will be issued until such time that we 
actually enter into an industry, when it will be exchanged 
for a stock certificate. From that moment each will become 
a preferred stockholder, or rather stockowner, in whatever 
plant or plants we may take over or erect. Thus the virtual 
ownership of the plants of a given industry will be vested 
in the workers themselves. The control of the plant or 
plants in whatever industries we may enter, will, of course, 
be held in trust by the Supreme Board of Trustees. 

When Wage Earners Become Investors 

Thus the wage earner automatically becomes an investor. 
Consequently from the time we go into active operation the 
workers holding the preferred stock in a given industry will 
draw, in addition to their wages, dividends of a minimum 
of six percent (which will be increased when and as con- 


274 


The New Capitalism 


ditions warrant). Workers in a given industry can also 
obtain stock in any other industry they may desire. More¬ 
over, they are not limited as to any amount. Any member 
desiring to invest larger amounts has the privilege to do so. 

Needless to say, since there are five million members rep¬ 
resenting, perhaps, several hundred different trades, or 
engaged in different crafts, not all of which will be affected 
during the first few years of our existence, provision will 
be made so that all may have an opportunity to participate 
in one or the other enterprise in which we might be inter¬ 
ested, for, let it be remembered, we will not concern our¬ 
selves exclusively with industrial enterprises; we will strike 
out into sundry directions in our endeavor to break the 
despotic tyranny of the Capitalistic-Mammonistic System, 
and gain our economic independence. 

The Membership Fee 

The Membership Fee, as I have stated, is to be ten dol¬ 
lars. I have lived for years with my subject; I have care¬ 
fully studied my plan from every possible angle; I know its 
every possibility, its every demand; its every requisite for 
success. I have made a complete list of the things that must 
be done, and a tentative estimate of cost, and can say that 
the fifty million a year I am setting aside will be ample for 
all essential and imperative purposes. 

First of all, it will be necessary to build and maintain an 
organization throughout the nation. That is important, 
and whatever the cost may be there can be no slighting of 
a single detail. The organization of the New Order will call 
for the best quality of “brains”—and a goodly quantity 
of it. If any one imagines that I am proposing a kinder¬ 
garten association let him disabuse his mind quickly. What 
we intend to do will be no child’s play. We shall have to 
deal with a dangerous, troublesome, resourceful and tricky 
adversary, a combination of men who have been in supreme 
and unchallenged control for decades of years, and who 
naturally may be expected to put up a desperate fight, nor 
scruple about the weapons with which they mean to combat 


“There’s a Way” 


275 


us. None realizes as I do the tremendous power of these 
unscrupulous men. I am not deluding myself for an 
instant. But more of that anon. 

In the second place, my plan includes the establish¬ 
ment of Colleges and Institutes, in which there will be a 
number of important departments: Technical, scientific 
and research; legal; legislative; statistical, etc. Political 
Economy, Accounting and Cost Finding Systems, Banks, 
Finance, Exchange, and Commerce, will be subjected to a 
thorough and complete analysis. We will get at the bottom 
of the Wage Question, Taxes, Tariffs, etc. In brief the false 
principles around which our economic life has been twisted, 
will be subjected to expert investigation and analysis in 
an endeavor to unearth the Facts and discover the Truth . 

But the most important and most necessary thing of all 
is the building up and maintenance of a powerful and influ¬ 
ential national press. This includes the issuing and circu¬ 
lation of the organization’s publications and whatever other 
literature may be deemed necessary to bring and keep the 
New Order, its purposes and work, its findings and achieve¬ 
ments, conspicuously before the public. Without a great 
national press and “pitiless publicity’’ service, the New 
Order would surely fail. With this important institution 
provided for we are prepared to meet any contingency that 
might arise, or cope with any conditions that may be created 
by those who do not want to see us succeed. 

The Capitalistic Cry of Horror 

The Capitalistic Entrepreneur group may be depended 
upon to raise a cry of horror and indignation at so great a 
“waste” of the “poor wage earners’ ” money. That is a 
favorite trick of theirs. Listen, for example, to this howl 
from the Wall Street Journal, quoted in the Chicago Jour¬ 
nal of Commerce, (November 11, 1920) : 

“No free country can afford to tolerate an irresponsible 
central organization like the American Federation of Labor, 
with the stupendous annual income of $48,000,000, in a 


276 - The New Capitalism 

position where it can defy the common law as applied to 
conspiracy. ’ ’ 

If no “free country” can afford to “tolerate” a “cen¬ 
tral organization ’’ that has ‘ ‘ a stupendous annual income ’’ 
($48,000,000)—( provided out of its own wages ) let me say 
to all friends, supporters, defenders and beneficiaries of the 
Capitalistic Entrepreneur System that an enslaved people 
intends not only to create a “central organization” but to 
provide, out of its own wages (and savings), many times 
the “stupendous” sum complained of by the Wall Street 
Journal —for the specific purpose of combating those who 
for years have defied not only the common law but the laws 
of simple justice, ordinary honesty, and common decency; 
and who are today engaged in a conspiracy to crush Labor 
and reduce the populace to a condition of hopeless servitude 
and permanent poverty. And they will pay whatever price, 
figured in sacrifice, and dollars and cents, may be necessary 
to curb, or if necessary crush, the cruel, inhuman and mon¬ 
strous Capitalistic-Mammonistic Entrepreneur System. 

The point on which the Capitalistic group will probably 
concentrate its attacks, is the salaries that it will be neces¬ 
sary to pay to those who will serve the New Order in one 
capacity or another. When the Grain Growers of the 
United States, in order to break the grip of the Capitalistic- 
Mammonistic group upon their throat, recently formed 
a national organization, sure enough, a cry was raised that 
they were paying their officers big salaries. So vicious was 
the propaganda set in motion by the interests anxious to 
break the new organization, that the United States Grain 
Growers, Inc., found it necessary to make a public defensive 
statement. I quote from the Commercial Edition of the 
Chicago Herald Examiner, (June 27, 1921) : 

“Enemies of the movement,” the statement asserts, “are 
attempting to discredit it in the eyes of the farmers by mag¬ 
nifying the importance of the fact that at the first meeting 
of the board of directors, salaries for officers were fixed as 
follows: President, $16,000; Secretary, $12,000; Treas¬ 
urer, $15,000, and General Counsel, $15,000.” 


“There’s a Way” 


277 


Talk about big salaries! According to the 1918 Federal 
Income Tax Report the officials in 317,579 establishments in 
that year paid themselves as “compensation,” the enor¬ 
mous sum of $2,225,543,259. In other words each of the 
sixteen million wage earner or non-investor families in 
1918, contributed an average of $139, merely to pay the 
salaries of the 317,579 corporation officials. The fifty mil¬ 
lion dollars we propose to set aside, out of our wages , be it 
remembered, for all purposes, is less than three percent of 
the amount with which the corporation officials reward 
their services to themselves—and which amount is charged 
up to the public as “cost of production.” 

The Adequacy of Our Capital Fund 

There is one point on which I desire to give a little light 
in this chapter. There will be those whose mentality, accus¬ 
tomed to move within circumscribed limits, cannot visualize 
what lies beyond their radius of immediate perception. To 
these a Basic Capital Fund aggregating only three-fourths 
of a billion will seem altogether inadequate for our economic 
regeneration. They forget that one of the coordinate pur¬ 
poses of my plan is to bring into existence a chain of banks 
or financial centers strategically placed, all under our im¬ 
mediate control. They forget that business is not done 
exclusively with cash capital; credit plays a prominent part. 
To what extent credit is employed may be best judged by 
observing the financial practices of the Capitalistic System. 
It is no secret that ninety-five percent of the country’s bus¬ 
iness is done on the credit basis, that is, for every 07ie dollar 
of actual cash capital, nineteen dollars of credit are im¬ 
pressed into service, that is, extended by those who control 
the nation’s finances through the medium of sundry inter¬ 
related banking and money institutions—to those in the 
industrial and other enterprises—by the Captains of 
Finance to the Captains of Industry, by the Capitalists 
to the Entrepreneurs—in brief by themselves, to themselves 
—and for their own exclusive benefit and profit. 


278 


The New Capitalism 

# 

If the New Capitalism were to adopt precisely the same 
tactics that the Capitalistic Entrepreneur System employs, 
and set in motion the identical machinery, our first year’s 
Basic Capital Fund of $300,000,000 would be a basis for a 
volume of credit nineteen times greater—or a total of 
$5,700,000,000; and the larger Basic Capital Fund of 
$900,000,000, accumulated during a period of three years, 
would represent credit possibilities aggregating more than 
17 billion dollars. 

In saying all this I want to be understood as merely 
emphasizing the credit utilization of Capital as practiced 
under the present control of the Capitalistic Entrepreneur 
System. That there are dangers a-plenty in such a condi¬ 
tion must be apparent to all those who have more than an 
elementary understanding of financial practices. The dan¬ 
ger of collapse is ever present, and every possible precau¬ 
tion must be taken. I speak of these things at this time and 
in this place merely to show what the present Capitalistic 
System has discovered to be the safe, not to say legitimate, 
limit of possibilities 1 —possibilities w r hich I should scruple 
to exploit, as well as hesitate to exhaust, preferring always 
to keep rather within the limits of a sounded safety than to 
venture into the uncharted seas of possibilities; for, as I 
have pointed out in another chapter, one of the causes of 
high prices is directly traceable to the almost limitless 
employment of credit. The greater the employment of 
credit in the conduct of business the greater the load of 
interest charges upon the people, and, therefore, we will 
be careful not to go beyond the reasonable, requisite and 
always safe limits in this important matter. 

When Finance is King 

I will merely hint at present that in the science of finance 
there is less of science than of sorcery. The miracles of 

i Writing on the Foreign Trade Financing Corporation which was 
organized with $100,000,000, C. B. Evans, in the Chicago Journal of 
Commerce . January 17, 1921, said: “In the development of the 
prospectus the same capitalization of $100,000,000 with power to 
issue debentures up to $1,000,000,000, as first proposed, is adhered 
to," Ergo, nine dollars of credit inflation for every dollar of capital. 



“There’s a Way/’ 


279 


banking can be explained by chicanery rather than by 
supernatural powers. I am purposely omitting a chapter 
dealing with “Banks and Their Practices,” because in it 
I would be compelled to say many things which had better 
be left unsaid at this critical time. Nevertheless, a little 
light from authentic sources will give verisimilitude to some 
of my statements with regard to banking practices made 
in this chapter. 

Finance is King, and “The King Can Do No Wrong!” 
It seems the dominant group of the banking and finan¬ 
cial system holds itself above accountability and entirely 
removed from the sphere of criticism. It resents having any 
of its tactics questioned or any of its transactions investi¬ 
gated. As an example, in the case of the New York Legis¬ 
lative Committee, Samuel Untermyer, Counsel (January 5, 
1921) proposed that the great financial institutions and 
insurance companies be investigated. Mr. Untermyer 
declared that “an insidious campaign through hired propa¬ 
gandists was on, to defeat the contemplated work of the 
Committee in investigating the loan market.” 

Or read this excerpt from an editorial in Forbes Maga¬ 
zine (July 9, 1921) : 

“Incidentally, that was a sorry figure cut by Forrest F. 
Dryden, president of the Prudential, when he refused to 
explain certain financial transactions which very badly 
needed explaining, that is, if Mr. Dryden hoped to retain 
a reputation for honesty. The only deduction to be drawn 
from Mr. Dryden’s willingness to be held in contempt 
rather than lay bare the truth, and from Mr. Lindabury’s 
excited efforts to butt in to muzzle his Prudential colleague, 
is that the facts could not stand daylight. From what was 
revealed by Mr. Untermyer, it would look as if the Pru¬ 
dential insiders had favored their own pockets.” 

Or this news-item from a daily paper: 

‘ ‘ The Pittsburgh Clearing House Association was accused 
by Comptroller Williams of the Currency today (February 
25) of having forbidden its member banks to furnish data 


280 


The New Capitalism 


asked for in the national bank call issued yesterday.' 2 * * * * 7 ( Her¬ 
ald Examiner, February 26, 1921). 

A Callous Conscience and Sensitive Nerves 

At the American Bankers Association in October, 1920, 
there was complete unanimity with regard to every reso¬ 
lution. “The only resolution which caused any discussion 
was that which referred to the United States Comptroller 
of the Currency. That officer had one lone defender on the 
floor of the Convention, and the resolution as presented 
was adopted with only one dissenting vote. 7 ’ 

John Skelton Williams, Comptroller of the Currency, had 
some time before charged that certain New York banks were 
exacting unnecessarily high rates of interest. In passing 
it may be stated that Comptroller Williams stated what are 
known facts. Nevertheless the sensitive body known as the 
American Bankers Association strongly disapproved of 
“such utterances by a public official,’ 7 and in a resolution 
declared that they were calculated ‘ ‘ to create an unfounded 
hostility between bankers and the public, even to breed 
violence of action and dangerous disturbance of the public 
mind. 7 72 

No! It is not at all remarkable that those most con¬ 
cerned have invested their sundry financial transactions 
with an air of mystery, and that they are loath to reveal 
how they perform their tricks. But these are matters 
into which we will go more deeply when the proper time 
arrives. 3 

Now or Never 

There was never so propitious a time as the present to 
institute a New Economic Order and inaugurate the New 
Capitalism. We will have the great advantage of begin¬ 
ning with a clean slate in every way. Besides the banking, 

2 Journal of the American Bankers Association, November, 1920. 

3The Pujo Commission in its report stated: “Most of the State 

institutions and of the principal national banks in the reserve cities 

of New York, Philadelphia, Boston and St. Louis, refuse or omitted 

to make any return whatever and denied the power or jurisdiction 

of the committee to inquire into their affairs.” 



“There’s a Way” 


281 


industrial and commercial interests, in brief the Capital¬ 
istic Entrepreneurs, are staggering under a tremendous 
load. We do not want to take advantage of their dilemma, 
but it cannot be denied that the present situation is fraught 
with manifold opportunities for us. This, of all times, is 
the opportune moment for setting in motion the wheels of 
the New Order—the machinery of the New Capitalism. 

Now is the time to organize; now is the time to raise the 
Basic Capital Fund; now is the time to plan and arrange 
all preliminaries so as to be ready to strike when the favor¬ 
able hour arrives. Now or never! Indeed we should have 
acted twenty years ago, before the Capitalistic Entrepre¬ 
neur System had so thoroughly entrenched itself. It would 
have been much easier to put incipient Capitalistic Entre¬ 
preneur power to rout in 1900, or say 1905, than it will be 
today. It would have been easier for the masses of the 
people to throw off the shackles with which they were being 
bound; easier for them to crush the incubus; easier to drive 
the beast out of its lair; easier to clip its claws; easier to 
extract the fangs of the monster. 

Twenty years ago it would have been possible to hinder 
the ascendancy to dominance of the small group of men 
who today are the nub of the Capitalistic-Mammonistic 
Entrepreneur System. Today, I admit, it is more difficult 
to challenge their supremacy; there are more obstacles to 
overcome, more pitfalls to encounter. We must display 
greater shrewdness and sagacity, and exercise more care. 
But if it is more difficult today it is also more necessary. 
It is our only escape from a mighty conspiracy and a con¬ 
stantly growing menace. In sheer self defense the people 
must unite their strength and combine their power to break 
the chains of their economic bondage. If they fail to act 
promptly, then let them prepare their ankles for the gyves 
of slavery fastened unbreakably to prison walls. 

A Clarion Call 

This is a clarion call to action! A call to quit talking 
and do something. Act now! or forever hold your peace. 


282 


The New Capitalism 


Break the bonds of economic slavery, while yet you have 
the strength to do it. 

“Act—act in the living presence, 

Heart within and God overhead.” 

Delay is dangerous, and every year lost will by that much 
weaken the cause of the people and strengthen the Capi¬ 
talistic Entrepreneur System. I will not say that five or 
ten years hence it will be too late, but I will say that unless 
resolute action is taken promptly, more drastic action, less 
gentle, less polite methods, may be necessary later. Of one 
thing you may be sure—that from this day forward tremen¬ 
dous efforts will be made to drive a wedge between the pub¬ 
lic and the laboring classes. No stone will be left unturned 
in an endeavor to widen the rift between organized Labor 
and the unorganized people. Here lies the only hope of 
the thoroughly organized Capitalistic Entrepreneurs to per¬ 
petuate and increase their despotic power and tyranny. 

Thus endeth this chapter, in which I have tried merely 
to give the readers a hurried summary of the essentials of 
my plan, and a glimpse of the possibilities of the New Capi¬ 
talism. 



CHAPTER XXI 

Our Principles and Policies 


I F I were given a commission to make this world over 
according to my own ideals, or were asked to improve 
it in conformity with my ideas, I would make few 
changes. Certainly there would be no upheaval. Such 
changes as I might be tempted to make would be entirely 
in individuals, into whose hearts I would try to infuse a 
degree of honesty, and into whose minds I would endeavor 
to inject a decent regard for their followmen. But the 
institutions I would accept as they are, leaving them intact, 
when right, and improving them only when necessary. 

The thing that most recommends my plan is the fact that 
it does not require destruction of a single thing, nor call 
for disturbance of any kind. We shall be able to proceed 
without pulling the ‘‘established order” up by the roots. 
Because we want to build a habitable house for ourselves 
is no reason why we should raze our neighbor’s cabin, or 
his castle, to the ground. There are economic theories 
a-plenty, each with a certain following. There are so-called 
remedial schemes without number, but each dependent upon 
a radical making over of everything. Some sweepingly 
condemn the whole economic structure, and contend that 
nothing short of pulling down the pillars of the temple will 
bring relief. These theories fail to take into consideration 
that the fabric of society is the texture of civilization; and 
that a remedy based on wanton destruction, is no remedy at 
all, and brings with it only ruin and chaos. 

The plan I propose is the only plan with specifications 
that calls for action—not destructive, but constructive 
action—upsetting nothing, destroying nothing. No violence; 
no confiscation of property; no expropriation; no division 


283 



284 


The New Capitalism 


of wealth; no overthrowing of the present system of govern¬ 
ment; no enactment of new laws or abrogation of the old. 
Indeed all laws now on the statute books are to our advan¬ 
tage, for—note yon well—the Capitalistic Entrepreneurs 
have been alert, and have had entered on the statute books 
of the nation, hundreds of laws that are favorable to them¬ 
selves, all of which can now be employed to our advantage 
—and will admirably suit our purposes. There are some 
things we shall try to change by degrees, and some that 
must be altered in due time, but we shall proceed in an 
orderly manner and always within the sanctioned limits of 
the law. What undoubted wrongs exist we shall certainly 
strive to right, and we hope that we may have the coopera¬ 
tion of all decent men and women within the nation, in our 
endeavors. 

A Definite Program 

The New Order must have a definite program, based on 
clearly defined fundamental principles. We are perfectly 
willing that the whole world may know precisely what we 
stand for, and what we will strive to accomplish. 

First of all, we believe in a square deal for everybody. 
We intend to deal fairly with and act decently toward 
everybody—every set of interests, every group—whether 
entrepreneurs, producers, manufacturers, wholesale dealers, 
retail dealers; and even essential so-called middlemen. But 
above all we shall insist that a square deal and decent con¬ 
sideration be given to the men and women included in none 
of the above groups,—the farmers, the wage earners, the 
salaried men and women, and those not on any regular 
pay-roll—in brief, the non-investor group—sometimes 
spoken $f as the ultimate consumers—the public. The 
Capitalistic Entrepreneur group has never believed in the 
square deal; certainly it has never practised it. It has 
never considered the welfare of the great masses of the 
public—only its own selfish interests. 

It is not our intention to materially alter the established 
order of business. Nothing is more remote from our minds 


Our Principles and Policies 


285 


than to destroy what is good and acceptable even in the 
Capitalistic Entrepreneur System. We will protect every 
legitimate interest, but we will eliminate the false principles 
of exploitation. We will defend the right to a fair profit, 
but we will not endure the profiteer. We will support and 
cooperate with every decent business man, be he producer, 
manufacturer or merchant, or in whatever legitimate line 
he may be engaged, as long as his methods are honest and 
his aim is not merely selfish. We will ascertain whether 
all of the so-called middlemen are essential to the proper 
and economical conduct of business. Those necessary will 
be retained; those unnecessary will be eliminated. 

With Regard to Industries 

It will be our aim for the present to enter into industries 
only to whatever extent may be necessary to bring com¬ 
modity prices from their present altitudinous height down 
to a reasonable level. If the Capitalistic Entrepreneurs 
show an earnest willingness to be decent—to readjust their 
wicked System—abandon their unjust methods, lay aside 
their crooked tactics and sinister practices, and give the 
public a square deal, that will be satisfactory to us. But 
we will not accept mere promises; we w T ant performances. 
No undue delays will be tolerated. Procrastination is not 
only the thief of time; in this critical period it is also the 
thief of the people’s money—their earnings and their sav¬ 
ings. We will be fair and reasonable; but we will stand 
for no tom-foolery nor for dilly-dallying. Mammonistic 
Capitalism, to save itself, must, willy-nilly, become decent 
—must reorganize itself on our basis. 

We do not propose ever to act rashly, and never unfairly. 
Our entrance into any industry will be prompted by the 
existence of intolerable and unjustifiable conditions in said 
industry. If the prices of a product are, according to our 
way of computing, unreasonably high, that is to say, de¬ 
monstrably excessive or exorbitant—extortionate upon the 
consumer—we will call upon the manufacturer to reduce 
them to decent limits. If he is unwilling, claiming that it 


286 


The New Capitalism 


can’t be done, or that he is producing at a loss, running on 
a trivial margin of profit, etc., we shall gladly give him an 
opportunity to prove his case. We will call for his cost 
sheets—his trial balance—and study the history of his in¬ 
dustry, examine his investments, inventories, and whatever 
figures and data he may have to substantiate his claim. 
You may rest assured that all the evidence will be critically 
analyzed, carefully computed, and fairly judged. 

If upon a thorough investigation it is disclosed that the 
manufacturer is not at fault—that he is not making an 
enormous profit on his actual investment—but that the 
retailer is guilty of extortion, we will give the retailer a 
fair opportunity to adopt reasonable practices. We will 
proceed with him much as we shall proceed with the manu¬ 
facturer. 

The Profiteer 

The producer, the manufacturer, the jobber, the whole¬ 
saler, and the retailer—each is entitled to a profit. We 
accept as an axiom that profit is the stimulus to business, 
to progress and to growth. Without a fair profit in pros¬ 
pect no man would care to go into business. We want it 
understood that it is at no time our plan to destroy profits. 
We are not opposed to profits. Indeed, we believe in a 
decent profit—a profit large enough to provide against any 
current or reasonable future contingencies. But we oppose 
double profits, camouflaged profits and extortionate profits. 
We are determined to curb and crush unconscionable profi¬ 
teering—to wipe out of existence the tribe of ruthless profi¬ 
teers. We will be fair in defining what constitutes a legiti¬ 
mate and reasonable profit. No honest producer or manu¬ 
facturer, no decent merchant, need have any misgivings as 
to our designs, aims or intentions in this regard. But the 
dishonest producer or manufacturer and the dishonest mer¬ 
chant may, with reason, stand in fear of us. 

It may be taken for granted that we will at no time inter¬ 
fere in any business where fairness and decency, justice 
and honesty, are in evidence. Certainly we will never pro- 


Our Principles and Policies 


287 


ceed recklessly, nor without good and sufficient reasons. 
It is not our aim to harass established business at any 
time. Our object and purpose is to create conditions that 
are fair and decent to all concerned, to the producer, the 
manufacturer, the retailer, the public, and, of course, to 
the wage earner—and to see that they are permanently 
maintained. 

No arbitrary stand will ever be assumed by us. No ill- 
considered attitude and no hasty action will be taken. We 
will move with caution and prudence, yet with precision 
and boldness. No step is to be taken without a complete 
understanding of what we are doing, and a comprehensive 
knowledge of what is to be done. In every case the officials 
of the New Order must be sure of their ground. 

No Miracles 

Let it be clearly understood, the New Order does not 
pretend that it will work miracles. It took centuries to 
bring about the conditions that afflict us today; we cannot 
expect to change them in a week. The evils that now 
characterize the Capitalistic System crept in little by little; 
our elimination process must proceed in like fashion. The 
basic wrongs inherent in the Capitalistic Entrepreneur 
System—and upon which it has builded its strength and 
its power—can, must, and will be destroyed by us, but 
gradually, and always within the sanctioned limits of the 
law. 

But there will be no sudden changes, and no violent up¬ 
heavals. Living costs will not come down with a thump. 
Wages will not be immediately increased; such improve¬ 
ments as can be made with regard to prices and wages, will 
be made, but cautiously and gradually. The Capitalistic 
System has declared that wages cannot be increased, nor 
prices lowered; we deny the Capitalistic claims, but we will 
find out for ourselves whether there is, or has ever been, 
any justification for them. Briefly, we do not propose to 
effect any radical changes over night, nor to bring about a 
perfect adjustment of all problems within twenty-four 


288 


The New Capitalism 

hours. We will not enter into a Marathon race before we 
have learned to walk. Remember that the Capitalistic Sys¬ 
tem arrived slowly and cautiously—step by step, gropingly, 
and always with the certain knowledge that its feet were 
planted on firm ground. We will do likewise. In this one 
thing at least, we will imitate the Capitalistic Entrepreneur 
group. 

Stock Exchange 

No! my plan proposes no immediate changes whatever 
in the “existing order,’ 7 bad as that “order’’ is. We will 
accept things pretty much as they are. Such changes, or 
rather improvements, as may be deemed necessary or de¬ 
sirable, will be made in due time and after careful analysis 
and mature consideration. For the present, however, we 
will disturb nothing; not even that which, because it brings 
no economic benefit to the people, deserves to be destroyed. 
For example: I have pointed out in a special chapter, that 
the stock exchanges, while undoubtedly of great value to 
a few hundred thousand, or a million, speculators, serve no 
useful purpose as far as the general, non-speculating, non¬ 
investor public is concerned. They are not necessary to the 
bona fide small investor. But in spite of all this we shall 
not aim to destroy the stock exchanges. No! let those 
who desire to gamble continue their gambling operations, 
but they must do it hereafter with their own money, not 
with ours. Let the speculator and the Capitalistic Entre¬ 
preneurs buy and sell their ‘ ‘ securities ’ ’ to each other if it 
affords them any pleasure—and profit. But while they are 
having their fun among themselves we will offer the genuine 
investor—the man or woman who actually desires to safely 
invest a certain amount of money, and be content with a 
fair and legitimate profit,—an opportunity to invest in 
actual properties, in actual securities. Our stocks, behind 
which there is an actual but not an inflated value, will 
always be worth one hundred cents on the dollar; they will 
not be worth $100 today and $85 tomorrow. Our dividends 
may fluctuate; the value of our stocks will not fluctuate. 


Our Principles and Policies 


289 


An Apology to the Small Investor 

All through this book I have had but one regret—viz., 
that I have been compelled to include in the Capitalistic 
1 i investor group ’ ’ a million or so small investors—men and 
women who have invested small sums in good faith in some 
of the Capitalistic enterprises, and by so doing became the 
prey of financial pirates, the innocent victims of bulls and 
bears. The stocks they bought for a hundred dollars a 
share, today have a market value of perhaps only fifty dol¬ 
lars—are worth about fifty cents on the dollar in the 
market. 

Their dividends in many cases have been passed in late 
years. But even though they have received dividends yearly, 
do they realize that the value (purchasing power) of their 
dividends during the past twenty years has been steadily 
decreasing—that, for example, a dollar of dividends in 
1920 had a value (purchasing power) of only thirty-eight 
cents compared to the dollar in 1913. In other words, if a 
small investor received $60 of dividends on a $1,000 in¬ 
vestment in 1913, and $60 in 1920, the amount he received 
in 1920 had a purchasing x_>ower of only $22.80 as compared 
with the purchasing power in 1913. 

A few corporations have come to realize that this depre¬ 
ciated purchasing power of dividends is a weak link in the 
Capitalistic chain, and are trying to overcome it by raising 
their dividend rates from six to eight and nine percent. 
But raising the dividend rate will not restore the lost pur¬ 
chasing power. To bring the purchasing power of divi¬ 
dends up to the full 1913 strength it would be necessary to 
raise the dividend rate from six percent to about seventeen 
percent. What corporation intends to do that? Ill an¬ 
swer ! Not one! 

But those that have or will raise their rate from six to 
eight or nine percent, propose to derive the additional 
amount necessary for the payment of the greater dividend 
rate, either by maintaining or raising still higher the 
prices of their particular commodities. In other words— 


290 


The New Capitalism 

the stockholders themselves will be made to help provide 
the additional revenue that would enable the corporations 
in which they are stockholders, to pay them a higher divi¬ 
dend rate. 

It is only proper that the “widows and orphans/’ as 
well as the thousands of employees who are being per¬ 
suaded, inveigled or coerced into becoming “investors” in 
the stocks of the corporations employing them, should un¬ 
derstand the Capitalistic logic with regard to the small 
investor, and the Capitalistic arithmetic with regard to 
their investments. 

The Small Investor Under the New Capitalism 

To the bona fide small investors in the so-called securities 
of the sundry transportation, industrial, public utilities 
corporations, etc., I want briefly to emphasize the distinc¬ 
tive difference of their investment under the Capitalistic 
inflation System—and under the system I propose. 

1: Under my plan their investment will always be 
worth one hundred cents on the dollar. Its value will be 
permanent, not change from day to day, or hour to hour. 

2: They will receive, let us say, a minimum of six per¬ 
cent on the par or permanent value of their investment 
(and if conditions permit, more than six percent). No 
bona fide small investor in the Capitalistic corporations has 
ever received more than six percent—and in the aggregate 
they have received less. The Pennsylvania Railroad, for 
example, recently reduced its dividend rate from six to four 
percent. Many of the big corporations passed their divi¬ 
dends for 1920 and 1921 entirely. 

3 : And this is a most important point! Under my plan 
whatever amount of dividends an investor may receive will 
have a 100 percent purchasing power; whereas under the 
overcapitalization System the dividends he is receiving have 
a purchasing power of, let us say, 50 percent. Conse¬ 
quently, six percent on an investment in our corporations, 
will have as great a purchasing power as a twelve percent 
return from an overcapitalized corporation. 


Our Principles and Policies 


291 


4: Any dividends which an investor receives and saves, 
will at all times have a 100 percent purchasing power. 
This is not the case at present. The dividends an investor 
saved twenty years ago had a 100 percent purchasing power, 
but today he can buy less than one-half the amount, volume, 
or quantity he might have been able to buy twenty years 
ago. 

But these are points which we propose to discuss more in 
detail once the New Order is in existence. 

The Banks 

The Sampsonian strength of the Capitalistic Entrepre¬ 
neur group, the foundation stone upon which the Capital¬ 
istic Entrepreneur System is builded, rests entirely on its 
money monopoly—its absolute and complete control of the 
nation’s cash resources and credit facilities. This has been 
stated so often, and proved so conclusively, and is so ob¬ 
vious, that I consider it almost a waste of time to repeat it. 

What does the New Order propose to do as regards the 
Capitalistic banks ? Break them, destroy them ? No! We 
will let them alone; we will let them go on with their mad 
dance. We will let them have their banks—and their Sys¬ 
tem, to do with as they please. We’ll not touch a hair of 
their head. But we will take precious good care that they 
shall not, hereafter, touch a hair of our head. We will start 
banks of our own; not a whole string of them at once, but 
gradually, one after the other—and our funds and credit 
facilities will be used for our own benefit, and our services 
placed at the disposal of those who want to convert their 
savings into real investments. In brief the depositors will 
own the banks, and will derive whatever profit is to be de¬ 
rived, from the use of their savings. We will not loan one 
dollar of our money to any speculator or for any specula¬ 
tive purpose. We’ll help and cooperate with the decent 
business man—the legitimate business man ,the farmer, the 
home builder. The promoter, the gambler, the profiteer, 
will receive no help from us. 


292 


The New Capitalism 


Boards of Trade 

The Board of Trade is the twin brother of the Stock Ex¬ 
change. The latter facilitates gambling in securities, the 
former in farm products and food supplies. The same 
group of traders can be found in both pits. Speculative 
buying and selling, and marginal transactions, can be pre¬ 
dicated of both institutions. 

With regard to boards of trade, Senators Kenyon and 
Capper have clearly shown that some of the crops of the 
United States are sold over from seven to ten times in the 
course of a year. For whose benefit ? The farmers ? No ! 
The public’s? No! For the undoubted benefit of a few 
thousand speculators. 

“Years ago,” said Senator Capper, “the people of the 
United States demanded the suspension of the infamous 
Louisiana lottery. It is against the law to run a gambling 
house anywhere within the United States. But today, un¬ 
der the cloak of business respectability, we are permitting 
the biggest gambling hell in the world to be operated in the 
Chicago Board of Trade. The grain gamblers have made 
the Exchange building in Chicago the world’s greatest 
gambling house. By comparison, Europe’s suicide club at 
Monte Carlo is as innocent and innocuous as a church 
bazaar. 5 ’ 1 

Gambling, marginal transactions, profit taking—these 
are the sustaining props of boards of trade. Gambling is 
an ancient sport, and will probably continue to the end of 
time. Marginal transactions are of more modern origin, 
and have as their basis the use of other people’s money. 
We can refuse to allow our money to be used for specula¬ 
tive and profit taking purposes. If we cannot stop gam¬ 
bling, we may be able in course of time, to devise ways and 
means by which the things gambled in can be diverted 
from purely speculative institutions to legitimate markets; 
—ways and means by the employment of which the profits 

i From Senator Capper’s Speech at Smith Center, Kansas, October 



Our Principles and Policies 


293 


will go to the actual producers rather than to speculative 
gamblers; and even enable the public to participate in a 
share of the profits through the medium of lower prices. 
But all this is too big a subject—too tremendous a theme, 
with too many ramifications to be discussed in a paragraph 
or two. Suffice it to say, for the present, that stock ex¬ 
changes and boards of trade will come under the studious 
scrutiny of the New Order. 

The Fair Purpose of My Plan 

From all this it can be seen that I am not proposing 
any radical changes or violent upheaval. Indeed, I’ll go 
so far as to say that we do not want affiliated with us any¬ 
one who advocates changing the political, social or economic 
order through the medium of violence. Let it be understood 
that I am not calling those w T ho work for a wage to deeds 
of vengeance. I am making no appeal to their cupidity. I 
am but asking them to use their common sense to protect 
themselves and their children from further exploitation. 

I uphold the doctrine of property rights, but strenuously 
oppose the concentration of all the property in the hands 
of a few. I will at all times defend the principle of the 
individual’s right to hold property; but at the same time I 
shall labor to bring about a condition whereby the right 
to have and to hold property will be enjoyed by a greater 
number. The extension of the right to a considerably 
greater number than at present, and the actual acquisition 
of property by lawful means, as well as the enjoyment of 
the legitimate benefits that accrue to the possessor,—that, 
in brief, is the Alpha and Omega of the System of Eco¬ 
nomics, I am proposing. 

A Question and an Answer 

Can the New Order succeed? I answer:—Yes—beyond 
a doubt, for all the elements under which the Capitalistic 
Entrepreneur System developed itself to tremendous pro¬ 
portions will be in existence and employed by us to the 
utmost. We will have the capital; we will control our own 


294 


The New Capitalism 


labor; and what is more to the point, we will have the good 
will of the public at large for whose aggregate benefit, rather 
than for the selfish advantage of any group, we will operate. 
Service will be our slogan—Service at as low a cost as is 
consistent with business prudence. Service at a price that 
will not only not beggar the wage earners, but enrich them. 

The Attitude of the “Big Interests” 

I am going to pay the Capitalistic Entrepreneurs the 
compliment of saying that they will, discover the possibili¬ 
ties of the New Order under the New Capitalism long before 
those most concerned; and since I am familiar with the 
tactics of the “Big Interests’’ I know to what extreme 
measures they will be tempted to resort to prevent the New 
Order from organizing, and the New Capitalism from be¬ 
coming a menace to them. In fact I have noted down all 
the things they will be likely to do in their desperate at¬ 
tempt to kill our child aborning. 

When once my plan is understood, and the first step 
toward organizing the non-investor group has been taken, 
through the nucleus of organized Labor, you may rest 
assured that a great contest of strength will ensue. The 
powers that be will launch a nation-wide poison propa¬ 
ganda, bring forth their strongest weapons, employ their 
subtlest strategy, their ablest generalship, their most ruth¬ 
less tactics, and seek to win in the contest with deadly 
gases and liquid flames of fire. Through their banks they 
will attempt to checkmate our every move, to strangle us 
—to throttle us. But let them try. They will find us pre¬ 
pared to counter their every stroke, to checkmate their 
every move. 

Not until we are molested will we show our teeth, and 
even bite if it is necessary; not until we are attacked will 
we strike back; not until we are threatened with violence 
will we fight, and then to the death. We serve notice right 
now that we will not offer the right cheek when our left is 
smitten. We shall practice patience, but leave humility to 
the saints. 


CHAPTER XXII 

Who Is “The Public”$ 


B UT before organized Labor can attempt to inaugurate 
a New Order, it will have to take an inventory of 
itself. It behooves me, therefore, to emphasize the 
two false bases upon which organized Labor has been build¬ 
ing its organization to date. It is because organized Labor 
did not discover that the bases were false that its super¬ 
structure is toppling over. I mean Labor’s wrong attitude 
toward the public, and its false concept as regards wages. 
If what I shall write in this chapter, and the chapters deal¬ 
ing with wages, will help to clarify views; if organized 
Labor will grasp the full import of these two basic subjects; 
if seeing the error of its way in the past it can persuade 
itself henceforth to a clearer vision of its status and true 
relationship to those not of its fold, much will have been 
accomplished. A good beginning will have been made. 

You may have noticed within recent years, in the daily 
press, financial papers, trade journals, manufacturers’ offi¬ 
cial organs, and commercial publications of all kinds, one 
of the most effective slogans in the Capitalistic category— 
viz., that nothing must be done, or even tolerated, that is 
detrimental to society—to the community, or the public. 
How tenderly solicitious these Capitalistic spokesmen have 
suddenly become of society; how graciously considerate of 
the community; and what wonderful champions of the 
general public. The assumption is, of course, that the Capi¬ 
talistic group has never in all its history done anything 
that was not, ever and always, for the immediate welfare of 
society, and for the best interests of the community, and 
invariably for the good of the public. While the inference 
and the open charge is that every attempt that Labor makes 
to better its condition is a distinct slap in the face of the 


295 


296 


The New Capitalism 


public—an offense against the community—an attack 
against the very pillars of society. 

Let me briefly examine this new slogan, and lay bare its 
arrant knavery—its camouflaged hypocrisy. To the propo¬ 
sition that neither organized Capital nor organized Labor 
has a right to do aught that is detrimental to society, or 
an injustice to the community, or an attack on the public, 
I give heartiest assent. And then I assert that everything 
that the Capitalistic group has done from its very inception 
has been diametrically opposed to the best interests of so¬ 
ciety—of the community and the general public. That this 
is more than an assertion I hope at least some of the chap¬ 
ters of this volume will partially show. But lest some eco¬ 
nomic wiseacre, or offended Mammonist, take issue with me 
on this score, I challenge him to disprove my claim that 
the whole Capitalistic System, and all its operations, are 
specifically for the benefit of a comparatively small group. 
I challenge him to deny that the public actually pays the 
dividends on the inflated valuation of the overcapitalized 
corporations, and interest on all the inflated “values’’ of 
productive properties. I challenge him to prove that the 
public is directly benefited by the Stock Exchange transac¬ 
tions. I promise him that I will be largely attentive while 
he categorically enumerates the blessings showered upon 
the public by selling the grain crops of the United States 
over several times a year. I am willing to be silent while 
he demonstrates, arithmetically or otherwise, just how the 
general public is the beneficiary of the system of overcapi¬ 
talization and inflation. 

If any organized institution is to be criticised, or con¬ 
demned, or destroyed, because it is injurious to the best 
interests of society—harmful to the community—and brutal 
to the general public—that institution is the Capitalistic 
Entrepreneur System. 

“The Party of the Third Part” 

But there is another and a more insistent side to this 
question, a brief discussion of which seems to me entirely 


Who Is “The Public”? 


297 


in order here. Who is the general public, which it pleased 
Governor Allen of Kansas) et id genus, to dub “the Party 
of the Third Part”? How is this “Party of the Third 
Part” constituted? Who composes it? The country 
is made up of twenty percent of investors, and eighty per¬ 
cent of non-investors. Consequently the public is composed 
of twenty percent of Capitalistic “investors” and eighty 
percent of non-investors—of wage earners and salaried men 
and women. If, then, any group of wage earners, or 
salaried men and women in their role of workers, seek to 
protect or defend themselves, or deem it necessary in order 
to vindicate a fundamental principle, to resist, to strike, let 
us say, and thereby cause temporary inconvenience or even 
suffering to the public, they are inflicting inconvenience 
and suffering principally upon themselves. I rather sus¬ 
pect that the part of the public that protests is chiefly the 
twenty percent of Capitalistic “investors”—beneficiaries 
of the Capitalistic System, which in every instance is re¬ 
sponsible for strikes and miscellaneous disturbances. Let 
us have no further nonsense about the wrong that Labor, 
in a struggle or death grapple, inflicts upon the public— 
that is—principally on itself. 

Strabismus 

Now the surprising thing is that organized Labor, or 
more correctly speaking some of its leaders and spokesmen, 
do not seem to have realized this fact. They speak and act 
as if there were indeed “a Party of the Third Part”—a 
portion of the population that belongs neither to the inves¬ 
tor nor to the non-investor group—that stands between 
Capital and Labor—a sort of innocent bystander, and help¬ 
less victim of the multitudinous quarrels and fights between 
the Capitalistic group and the wage earner group. 

In its preliminary report the Convention Committee on 
Social Service declared: ‘ ‘ The problem of Labor and Capi¬ 
tal is no longer one which concerns only, or even mainly, 
these two essential parties to production. As never before 
it is a community problem, a national problem, and an in- 


298 


The New Capitalism 

ternational problem—in a word, the problem of humanity.’ * 

Frank Morrison, Secretary of the American Federation 
of Labor, in answer to a request for an opinion on the pre¬ 
liminary report, seized upon this declaration, and in the 
course of his analysis combated the theory that the commu¬ 
nity—i. e . the public—is a party to and therefore con¬ 
cerned in any dispute between laborers and Capitalists. He 
maintains in substance, that the public has no interest in 
the laborer—that its interest is confined to the commodities 
laborers produce. This, however, he maintains, does not 
make the public a party to industrial relations. 

If the public took an interest in and concerned itself with 
the economic welfare of the workers Mr. Morrison would 
probably concede the public’s concern in Labor disputes. 
“I believe,” said Mr. Morrison, “a fair statement of the 
case is that the community’s interest in the worker is 
founded upon its one desire for the worker’s commodities, 
and not upon any belief in the right of the worker; its con¬ 
cern is not with the wages paid to the workers, or the con¬ 
ditions under which they work, but rather with the con¬ 
tinuous operation of industry, so that its wants may be 
supplied without interruption. After these wants have 
been supplied it is a matter of no concern to the commu¬ 
nity what becomes of the worker.” 1 

Mr. Morrison substantially argues that if the public mani¬ 
fests no interest in the condition of those who labor, nor 
evinces any concern whether the wages paid them are suf¬ 
ficient to enable them to live in frugal comfort and decency, 
then the public has no right to consider itself an injured 
party when Labor finds it necessary, either in order to 
secure better wages, or living or working conditions, to tem¬ 
porarily cease its operations. 

I have no desire to enter into a discussion of Mr. Mor¬ 
rison’s views here summarized. While discerning a meas¬ 
ure of plausibility in his logic I question the wisdom of his 
stand or contentions. I do not blame him for viewing the 


i The National Labor Digest, August, 1920. 



Who Is “The Public”? 


299 


question purely from the worker’s standpoint, particularly 
since without the use of their most effective weapon—the 
strike—(and strikes frequently mean a temporary incon¬ 
venience to the “public”) the condition of those who labor 
would be what it was fifty years ago; nay, worse, in that 
no improvement whatever in their condition, working or 
living, would have been made. 

When Capital Goes on Strike 

Mr. Morrison might easily have strenghtened his argu¬ 
ment by asking: What interest does the public evince in 
those who labor when Capital sees fit to strike (as was the 
case for more than two years after the war and as a result 
of which between four and five million men and women 
were thrown out of work). Capital’s most recent and pro¬ 
longed strike was not only a temporary inconvenience but 
a prolonged hardship, and an irreparable injury to the 
four or five million families of men and women who were out 
of work, or working only part time. Did the public pro¬ 
test? Did the public take a single step to end the incon¬ 
venience and hardships to which the four or five million 
men and women and their families were subjected? Did 
it make a single move to alleviate the suffering that Capi¬ 
tal ’s strike had imposed ? Has it concerned itself with the 
money losses of the four or five million; or is it particularly 
disconcerted by the reflection that most, if not all, of them, 
consumed their scant savings, while many were hurled into 
debt ? 

Two Sides to the Question 

Even those not ordinarily disposed to favor those who 
work for a wage will have to admit that there are two sides 
to the question, and that Mr. Morrison and others who have 
upon occasion taken the stand that the public, which is not 
vitally interested in those who labor, has no right to feel 
aggrieved when those who labor find it necessary in order 
to obtain a decent wage, or to improve their condition, occa¬ 
sionally to inconvenience the community. In view of the 


300 


The New Capitalism 


obvious fact that the public gives scant consideration to 
those who labor at any time, and no consideration at all 
when wage earners are in trouble, it is not difficult to 
understand the occasional tone of bitterness one discerns in 
the writings and utterances of Labor leaders. One cannot 
blame them when they ask at least inferentially:—‘ ‘ What 
has the public ever done for us? What consideration does 
the public give us; what interest in our welfare does the 
public take; what gratitude does it show for the personal 
sacrifice we have made and as a result of which this very 
public is now enjoying a better standard of living than 
Capital was willing to concede to it? If the general public 
is better off than it ever was; if it has improved its general 
condition, is it not largely owing to the fact that we fought 
the public’s fight—incurring loss of wages and savings, and 
even jeopardizing our freedom and our lives—when we in¬ 
sisted on better wages and better working conditions, more 
reasonable hours, etc., of all of which things the public is 
and has been the beneficiary ? ’ ’ 

Walking Into the Trap 

To all of which argumentation any fair-minded person 
can easily subscribe. Nevertheless, and in spite of all this, 
I consider it unwise on the part of Labor leaders and 
spokesmen to indulge in harsh utterances as regards the 
public, particularly since it is the apparent design of the 
Capitalistic group to spread the idea that organized Labor 
is opposed to the public; that it considers its own interests 
superior to the interests of the public;—in brief that what¬ 
ever is to the interest of organized Labor is necessarily op¬ 
posed to the public interest and detrimental to the public’s 
welfare. 

Readers will recall the Allen-Gompers debate, in the 
course of which Governor Allen asked Mr. Gompers the 
following question: 

“When a dispute between capital and labor brings on a 
strike affecting the production or distribution of the neces¬ 
saries of life, thus threatening the public peace and impair- 


Who Is “The Public”? 


301 


ing the public health, has the public any rights in such a 
controversy, or is it a private war between capital and 
labor? If you answer this question in the affirmative, Mr. 
Gompers, how would you protect the rights of the public ? ’ ’ 

The circular announcing the publication of Governor 
Allen’s book, entitled ‘ ‘ The Party of the Third Part, ’ ’ com¬ 
pares the question Governor Allen asked Mr. Gompers to 
the question Lincoln addressed to Douglas in their famous 
debate; and adds that no matter whichever way Mr. Gom¬ 
pers might answer, it would ruin him . 2 

I am not concerned with the Allen-Gompers debate or 
controversy. I wish merely to emphasize the admitted de¬ 
sign of Governor Allen to ruin Mr. Gompers, i. e., to dis¬ 
credit organized Labor in the eyes of the public; and to 
add that w T hen the leaders and spokesmen of organized 
Labor go on record with statements which, to say the least, 
are ungracious, they are walking with both feet into a 
cleverly concealed steel trap laid by organized Capital. 
Or to vary the figure somewhat, they are furnishing the 
powder for the Capitalistic guns. 

The Change in Public Sentiment 

1 doubt whether the public, in the mass, cherishes any 
serious resentment against organized Labor on account of 
an occasional inconvenience, or even temporary hardships, 
resulting from a strike either for better wages or better 
working conditions, for, be it remembered that the general 
public is principally composed of men and women who 
work for a wage or salary, although most of them are not 
organized, and do not belong to any Labor union. In a 
general way, then, I would say that the public’s sympathy 
is with organized Labor, or at least has been up to within 
recent years. If there has been any change in the public's 
sentiment or attitude it is not on account of any temporary 
inconvenience resulting from an occasional cessation of 
work on the part of organized Labor, but rather for an 

2 According’ to the same circular Mr. Gompers did not answer the 
question, but later he issued a statement. 



302 


The New Capitalism 


entirely different set of reasons. The public—and I speak 
more particularly of the millions of unorganized men and 
women who, like those who are organized, work for a mere 
living wage or salary—has observed for some years now 
that certain organized Labor unions have used their organ¬ 
ized strength and power selfishly, and ruthlessly, utterly 
disregarding the rights or welfare of everyone else. 

For example, in 1919 there was a strike of the Chicago 
street railway motermen and conductors, and traffic was 
tied up. After a few days the not unreasonable demands 
for an increase in the wages of street railway employees 
were granted. But this increase in the wages of railway 
employees was made the excuse for a further increase in 
fares. Formerly the car fare was five cents; now it is 
eight and ten cents. This means that every man and woman 
who works, and who uses the street cars, surface or elevated, 
going to and coming from work, must now pay six or seven 
cents a day more than formerly—or about twenty dollars a 
year. 3 

It is generally believed that the surface and elevated lines 
gained more from this increase in fare than the railway 
employees. 

In like fashion the milk wagon drivers ’ strike, conducted 
about the same time and supposedly under similar auspices 
and with the same results to the general public—viz., that 
the average family was compelled to pay considerably more 
for its milk, cream and other dairy products. It has been 
computed that of the total amount of the increase only 
about 45 percent went to the drivers and other employees, 
and 55 percent to the operators. 

These are only two instances, in a single city, of hundreds 
that could be cited, to show how isolated groups of Labor 
unions in all parts of the United States, have been instru- 

3 in June, 1922, the fare on the Chicago surface lines was reduced 
by order of the Court, to seven cents. The railway company promptly 
* a « n ?A Unced that the seven cent fare would result in a reduction of 
$9,000,000. On July 3, we read in the Chicago Daily News : “The 
11,000 motormen and conductors on the Chicago Surface Lines will be 
asked tonight to take a wage reduction of 25 percent, or thirty cents 
an hour, from the present scale of eighty cents.” 



Who Is “The Public”^ 


303 


mental in burdening the general public with a considerable 
aggregate increase in tlieir living expenses. The recent 
revelations with regard to hundreds of engineered strikes, 
generally instituted by so-called “business agents” of Labor 
organizations for their own private benefit and gain, all 
of which are to a certain extent responsible for considerable 
increases in the rent item of families, to say nothing of ad¬ 
ditional increases in the prices of commodities manufac¬ 
tured or sold in buildings affected by such “hold up” 
strikes, have accentuated the bitterness that the general 
public is beginning to feel toward Labor, particularly 
organized Labor. 

The Press “Tells the World” 

The daily press is not allowing any opportunity of giving 
full publicity to every offense of this nature to escape. 
Thus we read in the^hicago Daily News (July 16, 1921) : 

“Assistant State’s Attorney E. Stanley Hodges an¬ 
nounced that an investigation of alleged interference with 
the milk supply, said to have been practised by milk wagon 
drivers, would be started in the near future. 

“ ‘I have summoned the officials of the Milk Wagon 
Drivers’ union for questioning,’ said Mr. Hodges, ‘and 
if the evidence bears out the charges made to the office 
we will go before the grand jury asking for indictments. 

“ ‘The complaints, most of which have come from Chi¬ 
cago housewives, charge that there is an agreement among 
the drivers that dealers cannot be changed—that if a cus¬ 
tomer wishes to buy from other milk dealers he or she is 
informed that it is against the rules of the union. In some 
instances, it is alleged, the milk supply has been cut off and 
the customer forced to walk to stores for it. 

“ ‘If there is really an interference of this sort we will 
stop it, ’ said Mr. Hodges. ‘ It is criminal to tamper 
with the milk supply during hot weather. In the case of 
families with babies it may result in death, and in that 
case we would be justified in holding the boycotting driver 
for manslaughter.’ ” 


304 


The New Capitalism 


This is only one of many similar cases that have been 
brought to the attention of the public within recent years. 
Hundreds could be cited in any big city, and thousands in 
the United States. It is not at all singular that the irrita¬ 
ting frequency of their occurrence has produced changes in 
the public mind and attitude in spite of the fact that a 
considerable portion of the public is composed of men and 
women who work for a wage or salary, or a recompense the 
equivalent of a wage. Moreover there is hardly a family 
that has not at some time or other, been the victim of some 
of the hundred and one restrictive rules and arbitrary 
regulations which Labor unions seem to insist upon, under 
the mistaken impression that they are necessary for La¬ 
bor’s protection and well being, and the strict observance 
of which generally means annoyance, discomfort, and ex¬ 
pense, to all not belonging to a Labor organization. 

When organized Labor employs high-handed tactics it is 
playing a losing hand. But when organized Labor allows 
itself to be betrayed into an attitude of seeming hostility 
to the public, through ill-advised or intemperate utterances 
of its leaders and spokesmen, it is guilty not only of blun¬ 
dering but of folly. 

A Study in Contrasts 

Why cannot organized Labor learn a lesson from organ¬ 
ized Capital? Take, for example, the following statement 
made by Richard S. Hawes, in his address as President of 
the American Bankers Association (October 19, 1920) : 

“Three factors are concerned in all these misunder¬ 
standings (between Capital and Labor) : labor leaders, in¬ 
dustrial leaders, and the more often disregarded public. 
The latter’s interests usually suffer most, because of the 
rules under which the contest is held. The welfare of the 
general public is most important. In the settlement of dis¬ 
putes, consideration should be given to the effect upon the 
public, and full responsibility placed.” 

Or listen to this cooing statement made by that great 
humanitarian, Elbert H. Gary, who for years has been 


Who Is “The Public”? 


305 


the valiant protector of the “rights” of his employees to 
work twelve hours a day and seven days a week, and whose 
whole career has been one prolonged act of affectionate 
consideration for the public, and loving regard for the 
public welfare: 

“It will cheerfully be admitted that the interests of the 
general public, so-called, are first to be considered. When 
they clash with private interests, the latter must be sub¬ 
ordinated. On this principle our Government is founded. 
It is essential to the protection and happiness of all the 
people,” etc. 4 

Compare the foregoing statements (Mr. Hawes' and Mr. 
Gary's) of tender solicitude for the public, with the 
brusque and caustic declaration by a representative of 
organized Labor. At the hearing 5 before a subcommittee 
of the Committee of Interstate Commerce on the Poindexter 
Anti-Strike Bill S. 4204 (Senator Poindexter presiding), 
Henry Sterling, Legislative Representative of the Ameri¬ 
can Federation of Labor entered a protest against the 
Poindexter bill. In the course of his statement Mr. Sterling 
said: 

‘ ‘ The chief reason alleged for the enactment of the anti¬ 
strike legislation is the convenience of the public. The 
public must not be inconvenienced. The public must have 
everything come its way, just as it should come; but did it 
ever occur to you, Senator, that the public does not give a 
damn for the man who works ? Unless he kicks and squirms 
and stops working he never gets a remedy for anything. 

‘ ‘ The public is like the priest and the Levite that passed 
over on the other side. The public is the one great sinner 
in the industrial field. The public makes all its conditions 
and controls them. It is not alone that the public is indif¬ 
ferent ; it is positively criminal in its indifference at times. 
The children in the mills in the South might work them- 


4 “Principles and Policies of the United States Steel Corporation.” 
Statement hy Elibert H. Gary, Chairman, at the Annual Meeting of 
the Stockholders, April 18, 1921. 

5 May 20, 1920. 



306 


The New Capitalism 


selves to death and the public would not care. It is only 
when the agitator comes along and points out what is the 
offense to the public conscience. They never will notice it 
unless it is pointed out. The only wrong done in the indus¬ 
trial conflict is to the so-called innocent third party, and as 
soon as we who work for a living take some effective meas¬ 
ures for our own welfare, then you want to put us in jail.” 

It is only fair to say in extenuation that “the convenience 
of the public” was given as the chief reason for the pro¬ 
posed anti-strike legislation; and it was by way of answer¬ 
ing the “reason alleged” that Mr. Sterling delivered him¬ 
self as quoted. Nevertheless such statements are illumina¬ 
ting, in that they clearly show a confused state of mind. 

Confusion Everywhere 

There are two things I charge against organized Labor 
as regards its crudely stated animadversions on the public. 

First, that it is utterly lacking in tact: 

Secondly, that it has no clearly defined idea as to who 
constitutes the public. 

The first charge I have sufficiently established in this 
chapter. But, as regards the second, I desire to urge a few 
palliating circumstances. Organized Labor is not alone in 
its confused notions regarding the constituency of the pub¬ 
lic. The press of the land, and men holding high, official 
positions, cannot be credited with any greater degree of 
clarity than organized Labor. You will recall, perhaps, 
that in 1919 the Chief Executive of the nation, Woodrow 
Wilson, called an Industrial Conference at which Capital, 
Labor and the Public were to be represented. Now glance 
at this list of the fifteen men who were invited by Mr. Wil¬ 
son to represent the public: 

“Among those invited and specially designated 
to ‘represent the Public Interest’ in this Confer¬ 
ence, behold Rockefeller (Standard Oil) ; Gary 
(Steel Trust) ; Brookings (Union Trust Co.) ; 
Chadbourne (Railroads); Dawes (Central Trust 
Co.) ; Burgess (National Banks); Gallaway (Cot- 


Who Is “The Public”^ 


307 


ton Trust) ; Endicott (United Shoe Machinery, 
Smelting Trust, etc., etc.) ; Feiss (Clothing 
Trust) ; Gay (Editor, Morgan owned Paper) ; 
James (Manufactures and Banks) ; Jones (N. J. 

Zinc Trust) ; Landon (American Radiator Trust) ; 
Meredith (U. S. Chamber of Commerce) ; McNabb 
(Known in San Francisco as ‘McScab’) ; Sweet 
(Beet Sugar); Titus (Oil).” 6 

Surely there is none to assert that these men are truly 
representative of the public, or deny that all of them fitted 
more appropriately into the Capitalistic group. In reality, 
in the so-called Industrial Conference, Labor had two dis¬ 
tinctly segregated Capitalistic groups arrayed against it— 
one admittedly and distinctively Capitalistic, the other also 
Capitalistic but masquerading as the public group. If then, 
Labor—more particularly organized Labor—owing to the 
great confusion as to who’s who, has blundered in tactics 
and in language against the public, its mistakes can be ex¬ 
plained as well as condoned. 

With Regard to the Future 

But if there has been confusion in the past there is no 
excuse for its continuance in the future. The new economic 
division clearly draws the line. The public is composed of 
all the people—divided into twenty percent investors and 
eighty percent non-investors. In the latter group we find 
practically all those who work for a wage; some are organ¬ 
ized, some are not. Organized Labor is in the non-investor 
group. Since the interests of organized Labor are identical 
with the interests of all non-investors, it is the height of 
folly for organized Labor to proceed as if it were not a 
component part of the non-investor group—composed of 
eighty percent of the population, i. e., of the general public. 
Consequently any move or step, any action or word on the 
part of the leaders or officials or representatives of the 
organized portion of the public, that alienates the sympathy 


6 La Follette’s Magazine, October, 1918. 




308 


The New Capitalism 


and moral support of those not organized, is the acme of 
folly. Let organized Labor ponder over this truth before 
it is too late, and mend its ways. 

Labor’s True Strength 

The greatest strength of organized Labor is found—not 
within its own ranks—not among its necessarily limited 
membership, but in the sympathy and moral support of 
that portion of the public having no investments, and whose 
income is derived from wages and salaries. There, I say to 
organized Labor, lies your true strength. These approxi¬ 
mately eighty percent of the population, are your sustain¬ 
ing props. True, it is an unorganized strength, an unas¬ 
sembled power, an undirected influence—but it is up to you 
to organize and assemble and to direct its support in your 
favor—not against you. 

Remember that you have no press that reaches all the 
people; your official organs do not fall under the public 
eye. Remember that there are millions not actively affi¬ 
liated with you who derive their information about you 
from an unsympathetic daily press. Remember that a ma¬ 
jority of the population gets its slant or bias concerning 
your virtues or your iniquities from the papers or periodi¬ 
cals it reads. Avoid narrowness and selfishness. There is 
nothing more fatal to your aspirations than the attitude 
“organized Labor for itself, and may the devil take the 
hindmost 7 ’—a sort of “public be damned” policy. 

Protect the eighty million—(of which you are a con¬ 
siderable part). Do not segregate yourself; do not strive 
only to protect yourself, and let everybody else not belong¬ 
ing to your particular organization go hang. That is an 
unwise attitude, a foolish policy—a suicidal procedure. 
Protect the eighty million and the eighty million will sup¬ 
port you. Above all, put your house in order. 


CHAPTER XXIII 
The Science of Wages 


P OLITICAL economists are fond of smothering burn¬ 
ing questions in a wet blanket of quasi-technical verbi¬ 
age. Thus, for example, in every treatise on Political 
Economy, lengthy chapters appear on “Wages.’’ We are 
told, with many fine distinctions and technical differentia¬ 
tions, what wages are and what they are not. We are told 
that there is a great difference between money wages and 
actual or nominal, wages; between money wages and com¬ 
modity wages; between gold wages and bread wages, etc. 
To explain all this, some writers have found it necessary 
to write voluminous works covering hundreds of pages. 

It seems to me that the whole discussion on wages can be 
greatly simplified. Instead of verbosely distinguishing, 
with much show of learning, between money wages, and 
actual or nominal or commodity wages, all of which means 
nothing, and clarifies nothing to the man and woman who 
works for a wage—on the contrary, only confuses them— 
why not reduce the distinctions to terms comprehensible 
to the average man or woman? Why not express it thus: 

Money wages is a stipulated amount of money a man or 
woman receives for having performed a certain piece of 
work, or for having worked a certain number of hours or 
days. 

Actual or nominal or commodity wages is the amount of 
money that a man or woman must pay out during twenty- 
four hours a day for seven days a week in order to merely 
live and be fit to work at all. 

Therefore, in the aggregate, what the economists call 
money wages represents the amount of money a man or 


309 



310 


The New Capitalism 


woman receives for, let ns say, forty-eight to sixty hours of 
work within a week’s time; and what they call actual or 
nominal wages is the amount he or she must pay out during 
the 168 hours constituting the week. These two definitions 
seem to me to cover the subject completely, for all prac¬ 
tical purposes. 

The Exchange Value of Wages—the 
Important Thing 

Since the wage earner has no alternative but to exchange 
his wages for the necessary living commodities the all im¬ 
portant thing about his wages is their exchange value. In 
any discussion on wages the stress is to be put on the 
exchange value of the wage dollar. If a small quantity of 
wages can purchase a given fair quantity of living com¬ 
modities then the exchange value of the wage dollar can be 
said to be high. Whereas if a large quantity of wages is 
demanded for the same quantity of living commodities, then 
the exchange value of the wage dollar can be said to be low. 

The exchange value of the wage dollar rises or falls 
inversely as prices of living commodities rise or fall. If 
we go back as far as 1896 and accept the value of the dol¬ 
lar and prices prevailing then as basic, we discover that the 
exchange value of the wage dollar has shrunk precisely by 
as many cents as prices of living commodities advanced. 
The wage dollar of 1920, as compared with the wage dollar 
of 1896, had an exchange value of only about 27 cents. 
This shrinkage in exchange value was produced by the rise 
in the cost of living commodities. It may be stated here, 
in passing, that there has been no rise in the exchange value 
of the wage dollar from 1896 to 1920—only a steady 
decline. 

It is rather singular that the political economists, so 
adept in inventing and formulating economic “laws” and 
describing their operations and effects, have thus far over¬ 
looked, or shall I say, ignored, what is easily the nexus of 
the whole wage question, viz., their exchange value. None 




The Science of Wages 


311 


of them, so far as I can recall, has ever written a chapter 
on this pivotal point in the entire wage controversy. Not 
one has ever pointed out that at the bottom of any demand 
for more wages is the desperate endeavor on the part of the 
workers, in the face of constantly rising prices, to maintain 
a reasonable exchange value for their wages. Not one has 
ever gone to the trouble of explaining that those who labor, 
particularly when they are organized, may have something 
to say about the amount of wages that shall be paid them, 
but they have absolutely nothing to say about the exchange 
value of the wage dollar; in brief, that Labor may stipu¬ 
late the amount of its wages; it cannot regulate their 
exchange value. Nor has one ever emphasized the futility 
of Labor’s deperate endeavor to maintain the exchange 
value of the wage dollar in the face of Capital’s grim 
determination not only to keep the quantity of wages low 
but also their exchange value. And yet here we have the 
seeds of the deadly conflict between Capital and Labor— 
the roots of the bitter hostility between those who pre¬ 
sumably pay wages and those who work for a wage. 

Capital Does Not Pay Wages 

From the very beginning Capital has been unwilling to 
accord more than a bare living wage—indeed less than a 
living w r age per worker. And when Capital, a quarter of 
a century ago, began systematically to raise prices, making 
it necessary for workers to demand more wages in order to 
enable them to meet the various price increases—Capital¬ 
istic Entrepreneurs howled as if every dollar of wages 
apportioned to Labor came directly out of their pockets; 
and to this very hour they act as if the paying of wages is 
taking the bread out of the mouths of their own wives and 
children. Yet, as a matter of provable fact, Capital does 
not pay wages at all. Labor pays its own wages out of the 
values it creates. Certainly it cannot be disputed that wages 
are paid out of Labor’s own product. 

A century ago a number of economists advanced the 


312 


The New Capitalism 


“Wages Fund” theory. 1 This theory emphasized, among 
other things, the dependence of Labor upon Capital, and 
insisted that wages were paid out of Capital—a fixed and 
predetermined fund. The theory was in due time exploded. 
It is no longer held that wages are paid out of Capital. 
Professor Seligman says in so many words that ‘ ‘ wages are 
not paid out of Capital; they are only advanced out of 
Capital.” The amount of money advanced by Capital is 
taken directly out of the product of Labor—not out of any 
capital fund. In other words, Labor “earns its own re¬ 
muneration”—actually pays its own wages. Capital 
merely finances their payment; for its own sake and con¬ 
venience expedites the exchange of the products of one 
group of workers for those of other groups, making at the 
same time a profit on the transactions involved—that is on 
the several turnovers. 

Taking industry in the aggregate it is conservative to 
say that in normal times there is an average of four capital 
“turnovers” in the course of twelve months. In some 
cases the turnover is quicker, in others slower—but four 
times a year is, I believe, a fair average. Consequently as 
regards the wages of the workers in an industrial estab¬ 
lishment the amount of money necessary to enable an 
employer to finance the payment of the wages of his work¬ 
ers is one-fourth of the total amount paid out in the course 
of the year. 

Let me reduce my statement to figures, and so as to sim¬ 
plify my contention still more I will select the industrial 
labor group for which statistics are available. In 1914 
there were 7,036,337 workers engaged in 275,791 establish- 


i John Stuart Mill in 1869, neatly explained the “Wages Fund” 
theory as follows: 

“There is supposed to be, at any given instant, a sum of wealth 
which is unconditionally devoted to the payment of wages of labor. 
This sum is not regarded as unalterable, for it is augmented by 
saving, and increases with the progress of wealth ; but it is reasoned 
upon as at any given moment a predetermined amount. More than 
that amount it is assumed the wages-receiving class can not possibly 
divide among them; that amount, and no less, they can not but 
obtain. So that the sum to be divided being fixed, the wages of 
each depend solely on the divisor, the number of participants.”— 
Quoted from “The Wages Question,” by Francis A. Walker. 



313 


The Science of Wages 

ments. Their wages aggregated $4,079,332,433, for the 
year. To finance the payment of the total amount of 
wages involved here, only one-fourth of the amount, or 
$1,019,833,108 was required within twelve calendar months. 
This amount—mark you well—was not paid out by the 
Capitalistic employers without any hope of ever getting it 
back; it was merely advanced by them for their own sake 
and convenience, knowing full well that through the vari¬ 
ous established channels of trade, all wages must quickly 
flow back into their coffers, to be again and again dis¬ 
tributed by them among the same workers, as wages. 

“Turnover” or “Handover” 

Yes! We have heard much within recent years of Cap¬ 
ital * ‘ turnover. ’ ’ It is on the turnover, or rather the 
frequency of turnover, we are told, that Capital makes its 
profits. But when we probe deeper into the subject we 
find that it isn’t out of the Capital “turnover” so much 
as out of the wage “ handover” that the Capitalistic group 
derives its enormous profits. Those who work for a wage 
or salary have no alternative but to hand back to the con¬ 
stituent members of the Capitalistic System practically 
every dollar of their wages. Generally speaking what a 
worker earns in a week is consumed within a week. The 
wage he receives is not his to keep; he is compelled to hand 
it back. In most cases it is consumed (spent) before it is 
earned (received). 

An Economic, Paradox 

Did you ever stop to think that the average wage earner 
receives not fifty-two times twenty or thirty dollars (or 
whatever his weekly wage may be)—in the course of a year, 
but only twenty or thirty dollars—fifty-two times a year? 
Sounds like a paradox, doesn’t it? Well, it is a paradox— 
not a verbal paradox but an economic paradox—and I’ll 
explain precisely what I mean. He receives the same 
twenty or thirty dollars fifty-two times a year. Remember 
he must hand back whatever he receives each week. It 


314 


The New Capitalism 


isn’t as if he could keep all he earns each week, and let it 
accumulate into a fund. His weekly wage—a stipulated 
amount—is turned over to him fifty-two times a year; and 
he is compelled to hand it back fifty-two times a year, or 
starve. 

Approximately twenty-seven million men and women 
work for a wage or salary. 2 With what they earn they 
must support themselves and their families. For their 
labor they receive, let us say, an aggregate of twenty billion 
a year from the Capitalistic System; but in the course of 
the year they hand their twenty billion back to the com¬ 
ponent members of the System. They gave twelve months 
of labor for the twenty billion dollars, but they had to give 
it practically all back in exchange for the living commod¬ 
ities, for food, clothing, shelter, and sundry things neces¬ 
sary to life, or, its minor comforts. 

And this performance is repeated not once in a lifetime 
but once every year. They receive another twenty billion 
the next year. No, not another twenty billion! It is the 
same twenty billion that they received the year before, and 
which, under the Capitalistic System it is not intended 
they shall keep. They are merely permitted to look at it 
for a few days, and hold it in their hands; the process of 
handing it back is a continuous performance. 

Why “Money Wages” Means Nothing 

Money has been defined as the yardstick of values. If 
we accept this definition and apply it to wages, it follows 
that the men and women who work for a wage or salary 
are paid only in yardsticks which they are not permitted 
to keep—only to handle for a few days. Before the end 
of the week the yardsticks have found their way back into 
the lumber-yards of those who distributed them—none too 
graciously; in most cases not so much as a fraction of an 
inch remains from the week’s supply of yardsticks. 

a According to Professor Alvin H. Hansen, of the University of 
Minnesota, there are 6,229,161 farm laborers, 2,074,792 lower salaried, 
1,672,225 servants; industrial wage earners 14,556,979, unclassified 
2.317.538. American Statistical Association, December, 1920. 



315 


The Science of Wages 

Money has been appropriately defined as a “ medium of 
exchange.” It is that, and only that, to the workers—a 
medium that must be exchanged by them for the things 
needful to life. They have no alternative. Money has also 
been called a “circulating medium.” Aye, it is; and the 
compulsion to make it circulate is inherent in every wage 
dollar. 

It has been said that 1 ‘ Profits are the wages of Capital. ’ ’ 
Then by the same rule of logic we ought to be able to say 
that “Wages are the profits of Labor.” The one is as 
absurd as the other. “Profits,” we are told, “is the 
amount that remains after all costs have been paid.” A 
goodly amount of profit remains to Capital after Capital 
has paid all costs, including labor. Whereas no profits 
remain to Labor after Labor has paid merely its living 
costs. 


Labor’s Meager Reward 

The plain truth is that the workmen and women receive 
nothing as a reward for their labor—nothing beyond a 
bare subsistence. Comparatively few—and that only by 
dint of the most rigid economy, manage to save a few paltry 
dollars. I say paltry , for the savings accounts statistics 
show that the savings of the eleven million depositors is 
only a few hundred million a year—a few dollars per 
capita. You may double or treble or quadruple the amount 
of their “savings” if you are to consider what may have 
been paid by them for insurance, protection, etc. 

Where Are the Wages of Yesteryear? 

If all the wage earners, which includes all salaried people 
and those receiving more or less regular honoria for their 
services—the equivalent of a wage or salary—received an 
amount aggregating, let us say, an average of only ten 
billion dollars a year for the past twenty years, their joint 
earnings for the twenty years would total the stupendous 
sum of $200,000,000,000. What has become of this two 
hundred billion dollars of wages? Where is it? Whither 


THE WAGE EARNER’S FAMILY INCOME 
AND WHAT BECOMES OF IT 

'25 



From more than a dozen different Tables, I have constructed in the 
course of my studies on Wages, I have compiled the above Chart as 
approximately showing the distribution of the Wage dollar—or rather, 
the average wage earner’s family income. Needless to say the figures 
are only approximate estimates, but, I believe, conservative and fair. 
In arranging the above Chart I assumed a theoretical $1500 a year 
income from wages for an average family, contributed by more than 
one worker per family. A $1500 yearly wage income would mean a 
wage income amounting to about $28.86 a week; or $4.11 a day. The 
distribution is about as follows: 


Rent.$225 

Farm Food Prod. 225 
Mfgd. Food Prod. 150 
Clothes . 225 


Mfgd. Com’dities $150.00 

Freight . 150.00 

Fuel and Light. . 37.50 

Public Utilities. . 37.50 


Taxes ..$150.00 
Misc. .. 112.50 
Savings 37.50 


Total $1,500.00 

There are many other ways of computing the wage income distri¬ 
bution. For example, you might say that the workers in a wage 
earner’s family work 7.7 w r eeks for the Landlord; 7.7 weeks for the 
Farmer; 5.2 weeks for the Manufacturer of Food Products; 7.7 weeks 
for Clothing and Wearing Apparel Manufacturers and Dealers; 5.2 
weeks for the Manufacturers of and Dealers in other Living Com¬ 
modities; 5.2 weeks for the Railroads (Freight); 1.3 weeks each for 
the Fuel and Light Companies and the Public Utilities Corporations; 
5.2 weeks for the Government (Federal, State, City, etc.) ; 3.9 weeks 
for the Miscellaneous Items essential to living; after which they may 
(if they are very thrifty) keep the wages of 1.3 weeks’ work for 
themselves. 


316 
















The Science of Wages 317 

has it disappeared? What of all this vast sum is left to 
those who worked for it—earned it? 

I am omitting a dozen pages filled with rather interest¬ 
ing statistics in pursuit of this inquiry, because it would 
unduly lengthen this chapter. Instead I will tersely state 
my conclusions by saying that the average wage earner 
saves ’ ’ less than five cents out of every dollar of his wages. 
This isn’t because he is unwilling to save, but rather be¬ 
cause, under present economic conditions, it is impossible. 
4 ‘ Sixty-five percent of our people are poor ’ ’; said Professor 
E. A. Ross in 1918, “that is, they have little or no prop¬ 
erty except their clothes and some cheap furniture, and 
their average annual income is less than $200 per capita.” 

A Helpless “Capitalist” 

It is all folly to say that every worker is a “ capitalist ’ ’; 
it is more than mere folly; it is the voice of hypocrisy 
speaking through the mouth of knavery. Every working¬ 
man and workingwoman is a capitalist, we have been told 
with irritating iteration during the past few years. Indeed! 
A queer kind of capitalist, you will admit, is he who is 
under compulsion to pay out every dollar of his wages 
week after week, merely for the roof over his head, for 
food for his body and clothes for his back. A queer kind 
of capitalist is he who has no choice but to “invest” his 
“capital” (labor), and his “dividends” (wages), for so 
many pounds of food and so many yards of cloth—and for 
a place in which to live. A queer kind of capitalist, who 
has no alternative except to let his capital and his divi¬ 
dends flow back through devious channels and by sundry 
devices into the coffers of the economic lords of creation— 
the constituent members of the Capitalistic group. 

The “Wages of Capital” 

But how does the Capitalistic group fare the while? 
Those constituting the Capitalistic group make their profits 
by virtue of the fact that the wage earners—the non¬ 
investors, are compelled to hand back to them in the form 


318 


The New Capitalism 


of rent, and the needful articles of food, clothing, etc., they 
must purchase in the course of a year, practically the full 
amount of their wages. What profit does the Capitalistic 
group make on this “handover” of wages? Ten percent, 
or twenty, or thirty, or forty, or fifty percent ? Who knows 
the exact amount of the profits of the Capitalistic group; 
who has the authentic statistics? I can compute the 
‘ ‘ profits ’ ’ from a correlation of various sets of available sta¬ 
tistics, but this would lead us too far afield. Moreover, I 
am less interested at this time in the exact amount of the 
profits than in the principle underlying the transactions 
between the wage earners, i. e., the non-investors, and the 
Capitalistic Entrepreneurs—the Capitalistic group. 

Nevertheless while we are on this subject I will quote a 
paragraph from a minority report (on the Revenue Bill 
of 1921) submitted to Congress by the Honorable Claude 
Kitchin of the Committee of Ways and Means, and which 
gives an idea of the profits of some of the big corporations: 

“An analysis of the returns as detailed in the report of 
the Commissioner of Internal Revenue since Januarv 1, 
1916, up to and including the present commissioner’s report 
of July 12, 1921, will show that corporations in the United 
States made net profits from January 1, 1921, in round 
numbers $50,000,000,000—to be more exact, $47,000,000,000. 
After deducting all the taxes they paid since January 1, 
1916, income, excess profits tax, and other war taxes, they 
have a clear profit left of $38,000,000,000, more than four- 
fifths of which ivas made by less than 10,000 corporations, 
and more than half of which was made by 1,026 of the big 
profiteering corporations, which includes the Steel Trust, 
the Bethlehem Steel Co., the Dupont companies, the vari¬ 
ous Standard Oil companies, the Coal Combine, the Woolen 
Trust, the Meat Packers, etc.” 

But whatever the exact amount of all the profits of the 
entire Capitalistic group may be, this is certain, that a 
considerable part of the profits garnered by the group is 
made out of the wages of the workers. View the subject 
from whatever angle you will; consider it from whatever 



319 


The Science of Wages 

standpoint you please, you must arrive at this conclusion— 
that a considerable portion of the “profits” of the Capital¬ 
istic group are made out of the wages of the workers. 

Turning on the Searchlight 

All this is a demonstrable fact! Then why is Capital 
so determined that those who work for a wage shall receive 
a minimum of reward for their labor? There is no logic 
in Capital’s reasoning with regard to wages. AVhat, then, 
is the psychology of the Capitalistic mind? Whatever 
charges can be made against Capital the chief Capitalistic 
Entrepreneurs cannot be accused of ignorance, short-sight¬ 
edness, or blindness. They know what they are doing every 
hour of the day and night, and why they are doing it. 
Their weather eye is never closed. They know that Capital 
does not pay wages; that Labor pays its own wages. They 
know that practically every wage dollar flows back into the 
Capitalistic coffers, and that Capital makes a goodly por¬ 
tion of its profits because Labor must exchange its wages 
for the living commodities. They know that the more wages 
Labor receives the more wage earners will spend, or rather 
purchase; the more wage earners purchase, the greater will 
be the volume of business; the greater the volume of busi¬ 
ness the bigger will be the production, the market, and the 
profits. 

Or let me express it thus: The greater the recompense 
Capital grants to Labor, the greater will be the savings 
(and investments) of the wage earners; the greater the sav¬ 
ings (and investments) of the wage earners, the greater 
their contentment: the greater the wealth and prosperity 
of the nation. 

And one begins to wonder just why the Capitalistic 
Entrepreneurs are so reluctant to apportion decent wages to 
Labor; and why they so steadfastly fight against increasing 
wages. And it is still more incomprehensible why they 
have banded themselves together as at present, in a com¬ 
mon, organized endeavor to still further cut wages—cut 


320 


The New Capitalism 


them to a point clearly insufficient to enable those who work 
to meet the high and still rising living costs. 

It would not injure the Capitalistic Entrepreneurs if 
they would apportion decent wages, or raise wages and 
maintain them at a decent level. It would deduct nothing 
from their capital, and their wealth accumulations would 
proceed the same. But evidently they have concluded that 
by raising prices and lowering wages their profits can be 
considerably increased; and that their wealth will, conse¬ 
quently, accumulate all the faster. One discerns behind 
the unwilling attitude of the Capitalistic Entrepreneurs 
with regard to the paying of fair wages, a sinister triple 
purpose: to crush not only those who labor for a wage or 
salary, but the whole tribe of non-investors into the dust; 
to keep them from accumulating a surplus; to hold them 
perpetually in economic subjection. In no other way can 
I explain their bitter determination to destroy organized 
Labor, whose chiefest offense thus far has been that it has 
insisted on a quantity of wages sufficient to enable workers 
to at least meet the steadily mounting living costs; a wage 
adequate for the decent maintenance of an average family. 

Labor’s Side of the Controversy 

Labor is entitled to more than it receives. Labor, far 
from being irrational has been more than reasonable—has 
been patient, long suffering, decent toward society and 
more than fair to Capital, though at times, particularly 
under the stress of great tribulations, it may have been 
guilty of the excesses of aroused passion. 

I am by no means disposed to defend physical violence. 
None condemns sabotage more vehemently than I do. But 
let us be reasonable and fair. Labor, theoretically, has 
natural rights, but no legal rights. Moreover, its natural 
rights, grudgingly admitted in normal times, and always 
circumscribed with legal restrictions, are, in a crisis, denied, 
nullified, enjoined and abrogated. It must be remembered 
that Labor has no other property than its ability to work— 
and that is a kind of property not protected by specific 



321 


The Science of Wages 

laws. Labor cannot invoke the power of the state either to 
defend its property or protect its inherent rights; while 
on the other hand the power of the state is frequently 
invoked by Capital to interfere with the natural rights of 
the workers. Since Labor cannot call for federal troops, 
the state militia or the community constabulary to protect 
its property, which is its labor; or defend its rights, small 
wonder that occasionally groups of workers, who, consider¬ 
ing themselves abused or aggrieved, conclude that they are 
dependent upon themselves—and so employ their physical 
strength to gain redress for their wrongs or to bring about 
an adjustment of their grievances. In saying all this I 
want it understood that I am not condoning violence; but 
rather I am laying some of the extenuating circumstances 
before the fair minded reader. 

The history of strikes since the inauguration of the big 
combines under the dominance of the Capitalistic Entre¬ 
preneur group, reveals that most strikes were for wage 
increases, and that in most cases wage increases were 
reluctantly granted, and only after the employment of 
coercive tactics on the part of the workers concerned. But 
whatever might be said of the tactics employed, I challenge 
the most ardent apologist of the Capitalistic System to 
prove that Labor has ever made a demand for what is 
unreasonable—unless you call the perfectly natural desire 
to live decently, and in moderate comfort, an unreasonable 
demand. 


Capitalistic Victories 

Certain sensitive Capitalistic souls have, within recent 
years, grown petulant because economic writers habitually 
speak of an average family and the average income per 
family. I, for one, am quite willing to dispense with the 
statistical family of five; and their statistical family in¬ 
come. I am perfectly willing to speak of the wages per 
worker. But if we accept that basis for our computations 
we will find that at no time have the wages per worker 
been sufficient to enable a family of five to live—not to say 


322 


The New Capitalism 


in decency and comfort—but merely to subsist. Oh, yes, 
we speak of an average family and its average income, but 
when we remember that there are in round numbers, forty 
million men, women and children “engaged in the gainful 
occupations” we are practically admitting that the average 
family is supported by two workers; that it takes the earn¬ 
ings of two persons to maintain an average family. 

Does not this alone prove that the Capitalistic System of 
Mammonism has been gloriously victorious? It is paying 
less than a living wage per worker. For an amount of 
wages—a reward that never was, nor is it today, more than 
just sufficient to purchase the necessaries of life, and per¬ 
haps a few minor comforts—it compels two members of an 
average household to render service. It must be clear to 
anyone who has a head with which to think, that this con¬ 
dition constitutes not a single but a double victory for the 
Capitalistic-Mammonistic Entrepreneur System. 

One would think that the Capitalistic Entrepreneurs, 
contemplating the complete success of their shrewdly com¬ 
puted plans, would rest content with their successes and 
achievements, and be disposed henceforth to assume a 
benevolent, if not generous, attitude, toward those who 
labor for a wage. But no! Mammonism is like corruption 
that feeds on itself. The Capitalistic Entrepreneurs today, 
in spite of the fact that they do not pay the wages of the 
workers, vociferously exclaim that they are paying fo Labor 
higher wages than they can afford to pay; and Mammon¬ 
ism has set its machinery—a wonderful mechanism—in 
motion, to bring down wages to a point where the joint 
earnings of two persons will no longer be sufficient to meet 
the living costs of an average family of five. 

The Vendetta 

The fight is waxing bitter. Those who labor for a wage 
are not blind to the fact that the Capitalistic System is but 
endeavoring to intensify and perpetuate its ancient injus¬ 
tice toward those who toil. They see the vast wealth accu¬ 
mulations of the Capitalistic Entrepreneurs growing yearly 


The Science of Wages 


323 


greater; and their own wages growing less in quantity and 
smaller in exchange value. 

Stripped of cumbersome and confusing phrases the roots 
of the bitter quarrel between Capital and Labor are found 
in the unwillingness of the Capitalistic Entrepreneurs to 
increase the exchange value of Labor’s wages. Not only is 
there observable an utter unwillingness to increase the 
amount of wages—there is evident a design to still further 
decrease the exchange value of the wage dollars of those 
who labor. 

Here, then, you have the relationship that exists between 
the Capitalistic group and the Labor group—between the 
Capitalistic “investor group” and the non-investor group. 
Relationship? Call it rather Apartship—for relationship 
implies some sort of connection, more or less intimate or 
formal; or consanguinity, close or remote; a common tie of 
some kind; a bond of mutual interest, or a community of 
interests. But there is, and there can never be as long as 
the present Capitalistic System exists in full force and 
effect, anything even remotely resembling amity between 
these two mutually antagonistic groups. They are as wide 
apart in their status and their aims as the poles. It is more 
than a rift that separates them; a chasm lies between them. 
From the very nature of their diametrically opposed and 
conflicting interests, it is obvious that bad feeling and 
enmity will keep them always apart. They have, and can 
have, nothing in common. As long as the wage earning 
non-investor more or less clearly realizes what is a demon¬ 
strable fact—that he is permitted to retain (save) only a 
beggarly few cents out of every dollar of his wages, while 
the Capitalistic investor claims as his share profits — 
whether euphemistically called interest, rent, dividends, 
surplus, or what not—from ten to fifty cents out of every 
dollar of the worker’s wages, the vendetta will continue 
until one or the other group is annihilated, or the false 
principles of the economic system, responsible for the feud, 
are utterly destroyed. 


CHAPTER XXIV 


The Philosophy of the Quantity Wage 

B UT while I insist that Capital could pay, or rather 
apportion, a liberal quantity wage and be none the 
worse off for according it, it behooves me to show 
the reverse side of the shield to the wage earners them¬ 
selves. As far as the wage earner is concerned the im¬ 
portant thing about his wages is not the quantity but the 
exchange value of his wage dollar. Labor has had some¬ 
thing to say about the quantity of its wages, but it has had 
absolutely nothing to say about the exchange value of its 
wage dollars. This is why wage earners find themselves 
today, in spite of what might be called a fair sized quan¬ 
tity wage, in a rather desperate situation. 

Just as the whole labor question is one of exchange — 
one workman exchanging his product for the products of 
other workmen, (money being merely the acceptable count¬ 
ers with which the exchange is facilitated or consummated) 
—so the whole question of wages resolves itself into one of 
exchange value, not of quantity. A high quantity wage 
with a low exchange value is an economic maladjustment. 
If quantity were the important thing, a Russian workman 
receiving forty or fifty thousand rubles a day would be 
better off than workmen anywhere in the world; but, alas, 
the exchange value of his thousands of rubles is almost nil. 
The wage compensation of the German artisan was never 
so high as it is today; but the exchange value of his marks 
was never so low. The mere quantity wage is an ignis 
fatuus which if persistently pursued will lead the pur¬ 
suers into a morass of difficulties and the bogs of despair. 

When Quantity Wages Were Small 

Karl Marx contended that Capital derived its profits 
from the unscrupulous exploitation of Labor. I have no 


324 


Philosophy of the Quantity Wage 325 

desire to enter into a discussion of the Marxian doctrine, 
nor of any of its derivatives and more modern variants. 
In this hook I am concerned less with economic gospels and 
theories and more with economic facts and fundamental 
principles. However, in the times of which Marx wrote, 
Capital’s exploitation of Labor was supposed to be carried 
on through the apportioning of a small quantity wage as 
Labor’s share of production. That is not true today, for 
since Marx wrote his indictment against Capital, wages have 
doubled and trebled. In the aggregate quantity wages have 
reached their highest point in the whole history of eco¬ 
nomics. But even though the high wages paid during the 
war were to hold from this day forth; even though Labor 
were to receive an ever increasing portion of its production, 
there would still be no relief, for the exchange value of 
wages is and will, under the established Capitalistic Sys¬ 
tem, continue to remain low. 

Quantity Wages and Living Cost Increases 

Up to 1896 w T ages and living costs per family, generally 
speaking, ran along parallel lines. It required all a man’s 
wage (and those of the contributing members of his house¬ 
hold) to pay for the essentials of living. Savings out of 
wages in those years were the result of a denial of the com¬ 
forts, enjoyments, and not infrequently, of the necessaries 
of life. 

With the dawn of the twentieth century began the 
ascendancy of the Capitalistic Entrepreneur group. Almost 
immediately the intent of the Capitalistic Entrepreneurs 
revealed itself in gradual increases in the prices of their 
commodities—in the gradual reduction of the exchange 
value of wages. 

Definitely speaking the High Cost of Living began about 
twenty-five years ago. Statisticians and economists are 
agreed that during the year 1896 the dollar had a maximum 
purchasing power—wages their maximum exchange value. 
Then the Trusts and monopolies were organized, as a result 
of which prices began to ascend; and as prices increased 


326 


The New Capitalism 


the purchasing power of the dollar decreased—and the 
exchange value of wages began to decline. It is to be noted 
that the advance in prices, particularly for articles of 
daily consumption, was gradual, a quarter of a cent, half 
a cent, a cent at a time. So gradual were these increases 
we scarcely noticed them; at least we did not complain. 

It was organized Labor that first took note of the gradual 
upward turn of the cost of commodities line and began to 
demand increases in its wages to enable it to meet the in¬ 
crease in the cost of commodities—living costs in general. 
Naturally, organized Labor fought only for itself, but it 
cannot be denied that the success of its own struggles for a 
better wage and living conditions also improved the wage 
and living conditions of those who were not organized— 
those who did not fight. Had organized Labor not waged its 
fight, economic serfdom and peonage would have resulted 
long ago. 

But in spite of its valiant fight organized Labor has been 
only partially successful in its attempts to keep its wages 
running parallel with living costs. In spite of the fact that 
it has succeeded in compelling several increases in the 
quantity of its wages it has not succeeded in narrowing 
the distance between the two lines. It did not succeed in 
maintaining the exchange value of wages. 

I need hardly emphasize that in 1914-1919 a new eco¬ 
nomic era began. Immediately after the war began prices 
of practically everything advanced rapidly; this time not a 
quarter of a cent, a half cent or a cent at a time, but by 
nickles and dimes, and quarters, and dollars. By 1919 
living costs were practically double what they were in 1914. 
(This time the landlords took a hand in the increases, and 
it must be said that they made up for the time they lost 
from 1900 to 1914.) 

To meet the sudden and tremendous increases in living 
costs, organized Labor demanded further increases in its 
wages. These demands were, in the main, granted without 
a prolonged struggle on the part of Labor, or sullen resist¬ 
ance on the part of the Capitalistic Entrepreneurs. The 


Philosophy of the Quantity Wage 327 


Government had adopted the stupid 10 percent plus cost 
system, and no matter how much Labor demanded or re¬ 
ceived, the Capitalistic Entrepreneurs and constituent mem¬ 
bers of the Capitalistic System were the beneficiaries. In 
fact the more wages Labor received the greater the cost, 
and the greater the profits of the employers of Labor. 

The system was satisfactory both to the workers and the 
Capitalistic Entrepreneurs. Both imagined themselves in 
the seventh economic heaven. Thousands of wage earners 
were receiving a greater quantity of wages than ever before 
in their lives. Small wonder that many of them completely 
lost their heads, imagining themselves richer by so many 
dollars a day, a week or a month. It was only the quantity 
of wages they saw; they did not stop to consider that the 
increase in the quantity was granted to enable them to 
meet the quantity increase in price. The exchange value 
of their wages had not risen a single point. 


The Simple Arithmetic of Wage Increases 

Professor Kemmerer has said that compared to the dol¬ 
lar of 1913 the dollar of 1920 had a value of only 38 cents. 1 
What does this mean? It means that if we consider the 
wages paid in 1913 as basic the wage dollar was a 100 cent 
dollar; whereas the wage dollar in 1920, on account of the 
tremendous increase in the prices of living commodities, 
had an exchange value of only 38 cents. The following 
Table shows the comparative exchange value of wage dol¬ 
lars in 1913 and 1920: 


Exchange Value of 
Wages in 1913 

$ 1.00. 

5.00. 

10.00. 

15.00. 

20.00. 

26.00. 

30.00. 

40.00. 

45.00. 

50.00. 


Exchange Value 
in 1920 

.$ .38 

. 1.90 

. 3.80 

. 5.70 

. 7.60 

. 9.50 

. 11.40 

. 15.20 

. 17.10 

. 19.00 


l “High Prices and Deflation,” by Edwin Walter Kemmerer. 













328 


The New Capitalism 


Still another way of expressing it is to say that for a 
given quantity of living commodities which in 1913 could 
have been purchased for one dollar of wages, it was neces¬ 
sary to pay $2.63 of wages in 1920. The following com¬ 
parative Table shows the amount of wages required in 1913 
and 1920 to purchase a given quantity of living goods: 


1913 


1920 


$ 1.00 
5.00 
10.00 
15.00 
20.00 
25.00 
30.00 
35.00 
40.00 
45.00 
50.00 
100.00 


$ 2.63 

13.15 
26.30 
39.45 
62.60 
65.75 
78.90 
92.95 
105.20 
118.35 
131.50 
263.00 


And so on. 

It is clear, therefore, that unless the workers in 1920 
received $2.63 of wages for every dollar of wages they 
received in 1913, they were worse off in 1920 than in 1913. 


The Proof of the Pudding 

I can understand why those who are deriving vastly in¬ 
creased profits from the considerably higher prices, in order 
to exonerate themselves from the suspicion of profiteering, 
pretend that the higher wage paid to Labor is responsible 
for the higher prices they are charging for Labor’s prod¬ 
ucts; but I cannot understand why Labor continues stup¬ 
idly to insist that it has been vastly benefited by its several 
wage increases, and that, too, in the face of an overwhelm¬ 
ing amount of evidence to the contrary. The very fact 
that Labor has demanded more and more wage increases 
proves conclusively that its aggregate wage increases dur¬ 
ing the past twenty years, have not been equal to the 
aggregate price increases during the same period. All sta¬ 
tistics show this conclusively. 

I have said, and I will repeat it, that while Labor has 














Philosophy of the Quantity Wage 329 

had something to say about the quantity of its wage, it has 
had nothing whatever to say about the exchange value of 
its wages. But even as regards the quantity of its wage, 
Labor has been unable to maintain anything like a parity 
between wages and living costs, as the following statistics 
clearly show : 

Union Scale of Wages and Hours of Labor, May 15, 1918. 

Bulletin No. 259 (October, 1919), of the Bureau of Labor Statistics. 

From the figures in Tables 8 and 10 of the comparative increase 
in rates of wages and in retail prices of food between 1907 and 1918 
may be stated in percentage form, thus: 


Atlanta .Weekly rates of wages increased 43 percent 

Retail prices of food increased 109 percent 

Baltimore.Weekly rates of wages increased 41 percent 

Retail prices of food increased 125 percent 

Boston .Weekly rates of wages increased 34 percent 

Retail prices of food increased 99 percent 

Chicago .Weekly rates of wages increased 35 percent 

Retail prices of food increased 102 percent 

Cincinnati .Weekly rates of wages increased 37 percent 

Retail prices of food increased 106 percent 

Denver .Weekly rates of w~ages increased 38 percent 

Retail prices of food increased 91 percent 

New Orleans.Weekly rates of wages increased 33 percent 

Retail prices of food increased 109 percent 

New York .Weekly rates of wages increased 27 percent 

Retail prices of food increased 101 percent 

Philadelphia .Weekly rates of wages increased 51 percent 

Retail prices of food increased 97 percent 

Pittsburgh .Weekly rates of wages increased 44 percent 

Retail prices of food increased 104 percent 

St. Louis .Weekly rates of wages increased 40 percent 

Retail prices of food increased 119 percent 

San Francisco.Weekly rates of wages increased 34 percent 

Retail prices of food increased 74 percent 

Seattle .Weekly rates of wages increased 39 percent 

Retail prices of food increased 90 percent 


The significance of these statistics grows when it is re¬ 
membered that over 40 percent of the average family budget 
goes for food. 















330 


The New Capitalism 


The following statistics of the Department of Labor 
(published in 1921) giving the comparative index numbers 
for union wage rates and for the cost of living, strikingly 
illustrate the utter inadequacy of quantity wage increases. 

Year Union Wage Bates Cost of Living 


1913 100 100. 

1914 102 103. 

1915 102 105.1 

1916 106 118.3 

1917 112 142.4 

1918 130 174.4 

1919 148 199.3 

1920 189 216.5 


Labor’s Emphasis on Quantity 

I do not blame wage earners for putting all the emphasis 
on the quantity of their wages, nor for believing that the 
size of their pay envelope is the all important thing, and 
that the more wages they receive the better off they are. 
I do not blame them for insisting on big wages to meet 
their already big living costs; nor for demanding wage 
increases to meet increasing living costs; nor for objecting 
to wage reductions, particularly in the face of the provable 
fact that living costs have not been materially reduced, in 
fact are, in the aggregate, fully as high as they were in 
1920. Since his pay envelope is the only thing that stands 
between the wage earner and the poorhouse, small wonder 
that he attaches so great an importance to its size. His 
labor is the w r age earner’s only productive property, but 
under the Capitalistic System it is not intended that that 
property shall receive any other reward than a mere liv¬ 
ing—and even that is grudgingly granted. 

Nevertheless it is a tremendous mistake to imagine that 
a big quantity wage is the supreme economic desideratum , 
or a panacea for all economic ills. No greater misconcep¬ 
tion is possible; no greater economic fallacy has ever en¬ 
tered into the heads of men; no greater delusion has ever 
played havoc with the imagination of the average man and 


Philosophy of the Quantity Wage 331 

woman who works, whether with hand or head. From the 
very beginning I have held that the greatest mistake that 
Labor ever made was to demand an increase in wages every 
time the cost of living advanced. What Labor should 
have insisted upon was not more wages but a greater ex¬ 
change value for its wages. If Labor had stood pat twenty 
years ago—if Labor had not demanded—if Labor had (oh, 
vagrant idealism!) positively refused to accept more money 
wages but insisted instead on a stabilized exchange value 
for its wages—the cost of living could never have mounted, 
and the complex economic problems that now harass us 
could never have attained their present proportions and 
gravity. If Labor twenty years ago had been able to see 
beyond the tip of its own nose it could have compelled an 
adjustment on the part of the Capitalistic group which 
would have forestalled future trouble, and rendered im¬ 
possible of occurrence the many evils that afflict the world 
today. In making the quantity of its wages the para¬ 
mount issue, Labor has done itself an almost irretrievable 
injury. 

I do not blame Labor for its strabismus; nor Labor lead¬ 
ers for following the line of least resistance, or choosing 
the easiest way out of what seemed to them a dilemma—in 
reality enmeshing themselves inextricably in fa vicious 
circle. I dare say that Labor, individually and collectively, 
had not concerned itself with economics; in fact hardly 
knew that there was such a thing as the ‘ ‘ science ’ ’ of Politi¬ 
cal Economy. It was not until the Trusts were organized 
and the relationship between wages and the cost of living 
was thrown out of plumb, that a few—a very few—among 
those who toil, began to think hazily along economic lines; 
and I fear me much that there has been considerable 
muddled thinking ever since. 

The great control that certain Labor leaders in the olden 
days gained over the rank and file of workers was directly 
traceable to this wrong concept regarding quantity wages. 
The rank and file of workers grumbled to their leaders. 
But every complaint on the part of the rank and file was 


332 


The New Capitalism 


invariably met by the statement: “You used to get $1.50 
a day. I got you $3.00 a day; ain’t you satisfied?” 

The argument was unanswerable. It was true! After 
all, their leaders were responsible for the higher wages 
they were now receiving. Not one of them ever saw that 
the higher wage carried with it no increase of purchasing 
power. Not one discerned that increase in the quantity 
of wages carried with it a proportionate decrease in the 
exchange value of the wage dollar. 

Painted Victories 

Samuel Gompers, President of the American Federation 
of Labor, in Collier’s Weekly (November 27, 1920) said: 
“By hard fighting the American working people have left 
behind them one abuse after another. They have taken 
the children out of the industries, they have abolished the 
sweat shop, they have reduced the hours of labor, they have 
renovated the whole factory system, they have given the 
workman a place respected in the community, they have 
taken away his rags and removed from him forever the 
badge of inferiority. Much of this progress has been 
gained through the ability of workers to organize cessa¬ 
tions of work.” 

Mr. Gompers, and other Labor leaders and champions, 
may be pardoned for pointing with swelling pride to some 
of the palliative measures that have been established 
through legal enactments, principally at the behest of or¬ 
ganized Labor, such as improved sanitary conditions; limit¬ 
ing the hours of labor, abolishing the sweat shop, greater 
protection against accident or disease, better working con¬ 
ditions for women and children; the minimum wage; the 
employers’ liability act, the compensation act, and sundry 
benefits by law secured, but the resultant cost of every 
“benefit” secured by organized Labor has been perma¬ 
nently charged up to increase in the cost of production, 
overhead expense, fixed charges, etc., and is being paid for 
by Labor itself, via the medium of higher prices. 

Indeed the supposed benefits of all remedial or protec- 


Philosophy of the Quantity Wage 333 

tive labor laws liave invariably re-acted on the entire non¬ 
investor group. Whatever increases in wages have been 
gained by the well organized Labor groups have been 
charged up as increases in cost of production, and are 
being paid by those who are organized and those who are 
not organized, many of whom have had no increases in 
wages. When the winning of a fight for better wages by 
one small group of non-investors means a loss to all the 
other non-investors, it is, to say the least, a sorry victory 
for the beneficiaries. When seventy percent of the workers 
are penalized for the benefit of the other thirty percent, 
something is radically wrong in the formula. 

But ignoring, for the present, the deleterious effects of 
wage increases on the general public, and putting the best 
possible interpretation upon organized Labor's well meant 
fight to improve its own condition (and incidentally the 
condition of all non-investors) can organized Labor be 
said to have been successful, even with regard to itself? 
If twenty-five years ago the average wage per worker was, 
let us say, $12.00 a week, and is today as the result of a 
series of stubborn strikes, $24.00 a week, is not that suffi¬ 
cient proof that Labor has been victorious—that it has im¬ 
proved its condition 100 percent. 

If living costs had remained where they were twenty 
years ago, and Labor had succeeded in doubling its wages 
the while, it could, indeed, claim that it has bettered itself. 
But living costs did not remain stationary; they moved 
forward more rapidly, and generally considerably ahead of 
the increase in wages. The relative distance between liv¬ 
ing costs and wages is the same today as it was twenty, 
or thirty, or forty years ago. The exchange value of wages 
is no greater; and the purchasing power of money and 
savings is considerably less than in those former years. 

To clinch the matter let me ask—Is a workman who re¬ 
ceives $12.00 a week, and who hands the $12.00 back to 
those from w4iom he received it in order to live, worse off 
than the worker who receives $24.00 a week and who must 


334 


The New Capitalism 


hand the entire $24.00 back to those from whom he received 
it, in order merely to subsist? 

If the wages of every worker were increased by one 
thousand dollars a year, and living costs were to bo in¬ 
creased by one thousand dollars, it is clear that wage 
earners would be no better off. And if the workers’ wages 
were increased another thousand dollars the following year, 
and living costs likewise advance another thousand dollars, 
still they would be no better off. Is it necessary to pursue 
this point further? Is it not clear that there is no economic 
salvation, no hope of amelioration, in mere quantity wages ? 

When Bubbles Burst 

There are, no doubt, those who belong to that school 
of philosophy which pretends to see “books in the running 
brooks, sermons in stones, and good in everything,” and 
who will urge that the larger quantity wage means a more 
extensive purchasing ability—that is to say, that a larger 
variety of things can be bought with more dollars than 
with fewer dollars. I shall not argue to the contrary; 
indeed, for the sake of better stating my point, I ’ll pretend 
that the larger amount, even though it has no greater 
exchange value—no greater purchasing power—is prefer¬ 
able. Have we not a better standard of living today than 
was enjoyed twenty or thirty or forty years ago ? Yea! Are 
not people today buying more luxuries, enjoying more com¬ 
forts than they did twenty or thirty or forty years ago? 
Again I ’ll agree! But then I will say in rebuttal that, 
deluded by mere quantity increase, so high have we raised 
our standard of living that we will not be able to maintain 
it much longer. Surely there is none to deny that the re¬ 
cession has already begun. Millions today are not living 
in the same way they were living even five years ago. Much 
curtailment in quantity and quality of essential foods, and 
other living commodities is observable. Replacement is 
slower. The more careful husbanding of the current re¬ 
sources has become imperative. Saving is almost out of the 
question. 


Philosophy of the Quantity Wage 335 

Economic Maladjustments 

Beyond a doubt more social and economic maladjust¬ 
ments are observable during the past twenty years than 
during all the centuries preceding, and most of them are 
directly traceable to the insane notion that a larger quantity 
of wages means greater prosperity for the recipient. The 
greatest wrong that has come from the system of high 
wages and low exchange value is that it has made millions 
of people reckless and extravagant. When quantity wages 
were lower, but carried with them a high exchange value, 
people spent conservatively; they watched their pennies 
and nickels and dimes. A few dollars were saved. When 
quantity wages increased, accompanied by a proportionate 
decrease in exchange value, unfortunately most wage earn¬ 
ers saw only the increase in quantity; they did not see 
that the exchange value of every wage dollar had actually 
and automatically declined. In reality they were no better 
off! But this they did not see, and do not seem to com¬ 
prehend. Many of them followed the line of least resist¬ 
ance—“easy come, easy go.” The old virtues of economy 
and thrift went flying through the window. Wages were 
spent without thought and without sense. It will, I fear, 
take some time before thousands of wage earners will change 
the bankrupting, poverty-bringing habits they acquired 
during a period of seeming, and only seeming, prosperity. 

Let us be honest with ourselves. Black clouds are gath¬ 
ering in the heavens overhead, heavens from which the 
once radiant star of hope has all but disappeared. How 
long will it be before the storm will break? We have 
begun to descend from the mountain top. The only ques¬ 
tion is how long will it take to complete the downward 
journey; how many times will we stumble and fall in the 
inevitable descent. We may not be entirely exhausted 
when we reach the bottom, but we shall realize then—too 
late—that our dream is o’er—that we have descended into 
a vale of tears—only to enter the deeper valley of death. 
If I see more than others it is not because I have a deeper 



336 


The New Capitalism 


ken and a keener vision, but because I have looked longer 
and with more careful eyes. I pray that the years to come 
may reveal that my fears were, if not unfounded, at least 
exaggerated. 

Hard Facts 

Returning once more to the earth, out of the realm of 
visions, I have no hesitancy in saying that Labor—organ¬ 
ized and unorganized—has never had a single real triumph; 
it has never gained a vital point in any controversy; its 
victories were always concessions. Its several wage in¬ 
creases have only added to its and our living costs. Not a 
single benefit that is real, not a single advantage that is 
clear cut and permanent has ever been accorded to Labor 
by the constituency of the Capitalistic System. Labor has 
won in some of the minor skirmishes; it has won a few 
strikes; it has gained a few trivial concessions; it has a 
few favorable wage compromises to its credit. But until 
Labor can say that it has increased the exchange value of 
the wage dollar it cannot boast of any substantial triumph. 

The Perpetual Interest Charge on Wages 

There is still another point that must not be overlooked 
with regard to quantity wages. It will not be disputed 
that Labor pays its own wages; whatever the quantity— 
Labor pays it to itself. But not only does Labor pay its 
own wages, it also pays the interest on its wages. Conse¬ 
quently the greater the quantity of wages Labor receives 
the greater the amount of interest it must pay on its own 
wages. This is a most astounding fact, one rarely dis¬ 
cussed by economic writers. And yet it is one of the most 
important points in the whole wage question—so important 
that I shall be at some pains to make it perfectly clear to 
even the humblest intellect among us. 

It will not be denied that Capital considers every dollar 
of wages paid for the production or construction of per¬ 
manent goods as an investment. Therefore, Capital charges 
wages permanently against the property, and insists on 



Philosophy of the Quantity Wage 337 

collecting interest on the total amount of wages paid, per¬ 
petually, from the public—the constituent majority of 
which is composed of wage earners. Let me explain just 
what I mean. 

The House that Jack Built 

Let us say that in the year 1905 a group of twenty 
workmen, each receiving $2.00 a day, completed a house, 
doing all the work, excavating, masonry, bricklaying, wood¬ 
work, plastering, painting, etc., within forty days. The 
house, when completed, and lot—represent, let us say, an 
investment of $6,000. Of this amount Labor received 
$1,600. Please note that the item of labor will henceforth 
be included in the investment value, and interest on it will 
be computed not once, but once every year thereafter. 

Now let us say that John Brown, one of the men who 
worked on the building, rents it from the owner (who com¬ 
puted the rental, let us say, at 8 percent on his investment), 
for $40 a month, or $480 a year, and lives in it for fifteen 
years. What happens? John Brown, the tenant, actually 
pays 8 percent on all the wages paid to those who built 
the house in which he lives. He pays $480 a year rental. 
Of this amount $128 is interest on the $1,600 of wages 
paid to himself and nineteen other workmen. 2 John Brown 
received as wages for the forty days work he did on the 
house he occupies, a total of $80; but he pays interest 
not only on the amount he himself received, but also on 
the amount the other nineteen workmen received. 

A fifteen years’ tenancy in that building means that John 
Brown will have paid a total rental of $7,200, of which 
amount $1,920 is computable as interest on the wages paid 
to the workmen who constructed the house fifteen years 
ago. In other words John Brown paid, in the course of 
fifteen years, in the shape of rent, $1,920 interest on $1,600 

2 Not only does John Brown pay interest on the wages he and 
nineteen other workmen who built the hous* in which he lives, 
received; he also pays interest on the wages the workers who 
fashioned the materials, tools, etc., received. 



338 The New Capitalism 

wages he and nineteen other workmen received fifteen 
years ago. 

The House that Jach y s Son Built 

But living costs have gone up. John Brown and his fel¬ 
low workmen demanded and received sundry increases in 
wages. In 1920, let us say, John Brown’s son and his fel¬ 
low workers, all following the trades of their fathers, are 
receiving each a wage of $6.00 a day. Just to illustrate 
the effect of this let us say that the lot, and all the material, 
are the same price as they were in 1905—that the building 
trades alone had wage increases. In that case the twenty 
workmen, each working forty days and receiving $6.00 a 
day, would be receiving $240 per man, or a total of $4,800. 
This would bring the value or cost of the $6,000 property 
up to $9,200. 

John Brown, Jr., rents the building. Assuming that the 
landlord is content with 8 percent on his investment, John 
Brown, Jr., will be paying $61.33 rent a month, or $736 a 
year. John Brown, Jr., received $240 as his share for 
the labor done on the building he now occupies as a tenant. 
When he pays his rent he pays, as interest, on his own and 
the wages nineteen other workmen received while build¬ 
ing the house in which he lives—a total of $384 a year. 
In the course of fifteen years he will have paid as interest 
on $4,800 wages which he and nineteen other workmen re¬ 
ceived fifteen years ago—a total of $5,760. John Brown 
is considerable of an optimist, not to say, cheerful idiot— 
if he considers himself better off than his father. 3 

Another Illustration 

Surely there is none to deny that every dollar of wages 
that has been paid for the construction of the railroads in 
the United States has become a permanent part of the in¬ 
vestment, and the public today is paying interest on those 
wages. So will the generations to come. Tens of thousands 
of those whose labor built the railroads are dead and gone— 

3 And what holds for dwellings is likewise true of all buildings, 
offices, stores, shops, factories, warehouses, storage houses, etc. 




Philosophy of the Quantity Wage 339 


but the wages they once received are still carried on the 
books of the companies as an investment; and interest on 
that wage investment of tens of thousands of dead and 
buried workers is still demanded from us. 4 

Here is food for thought. Labor not only pays its own 
wages, but pays the interest on the wages of all workers. 
And these interest charges, as shown in the case of dwell¬ 
ings, the railroads, and many other properties, or commodi¬ 
ties, are perpetual. On the wages Capital pays once in a 
current year, Capital charges interest for a long period of 
years. The higher the aggregate wage the greater the interest 
charge on the entire volume of wages paid. 5 It is a vicious 
circle. All that Labor receives as wages is paid back in the 
shape of rent or interest, one way or another. Let Labor 
sit up and take notice. 

“It Makes a Difference Whose Ox Is Gored 99 

What would you say if I were to argue that since the 
w T ages paid for the production, or construction, of perma¬ 
nent goods became a permanent and integral part of an 
investment, then it follows that those whose labor increased 
the value of the property, and gave permanency to the 
investment, ought to reap the benefit? 

Beyond a doubt a cry of horror and the chorus shout of 
‘ 1 Absurd! ’ ’ from the lips of millions,—constituents and 
beneficiaries of the Capitalistic System,—would rent the 
air. And yet the intimation I put forth is less absurd 

4 It is bad enough that the public is compelled to pay interest 
perpetually on wages that were paid for the construction of the rail¬ 
roads and the materials that went into them decades and scores 
of years ago; but the heinousness of compelling the public to pay 
interest on wages that were never paid, and high priced materials 
that were never put into the properties, on the 'basis of “replace¬ 
ment valuation,” must be obvious to the veriest tyro in economics. 

5 It can be shown that the public pays interest also on all 
wages paid for the production of transient goods—goods to which 
no permanency attaches—the consumptive products, such as shoes, 
clothes, all kinds of wearing apparel, fabrics and textiles, food articles, 
perishable goods, coal, etc. etc., the difference being that the interest 
is computed once on the gross volume of the goods produced within 
twelve months. In the case of transient goods the wage invest¬ 
ment is repetitive and interest is collected from the public from 
year to year. Whereas, in the case of permanent goods the wage 
investment is considered permanent, the interest charge is perpetual, 
and Capital collects it year after year. It’s a distinction without a 
difference. The public pays. 




340 


The New Capitalism 


than the actual practice of the Capitalistic System of 
today, by virtue of which wages paid once are made to 
appear perpetually on the books of corporations, and on 
which wages interest is collected year after year from the 
very persons whose labor enhanced the value of the invest¬ 
ment, from the w r age earners, the non-investors, the public. 
I am merely asking a question; I am putting forth no ad¬ 
vocacy in this paragraph; but it seems preposterous that 
those who gave not a single hour of labor should be the per¬ 
petual beneficiaries of the permanent value which wage 
earners admittedly gave to their investment. 

But I do not want to pursue this most interesting argu¬ 
ment to its logical end. To do so would be interesting, but 
alien to the purposes of this book. The one point, however, 
that I wish to emphasize is this: If those whose labor 
added a certain value to various kinds of properties—are 
not to derive a benefit other than a wage—at least they 
ought not to be penalized and made to pay perpetual inter¬ 
est on the wages they, or their associates, may once 
have received. 

Quantity—Not the Ultima Thule 

I have emphasized that mere quantity wages is not the 

summum bonum nor should it be the ultima thule of anv 

«/ 

economic arrangement. The exchange value is the impor¬ 
tant thing. Today Labor is receiving what might be called 
a maximum wage, but the exchange value of its wages was 
never lower. This is a point which Labor owes to itself to un¬ 
derstand fully. Nothing is gained by self-delusion. Certainly 
I who am writing this book will not deceive those who 
work for a wage. I would have them know the truth. I 
will not lie to them. I will not indulge in ambiguity; I 
will not equivocate. Until the lesson that the exchange value 
of wages is the crux of the wage question is learned, no 
progress can be made. 


The Genesis of Wages and Living Costs 

CHAPTER XXY 

I N this chapter I shall confine myself to a brief discus¬ 
sion of a few of the salient points entering into a com¬ 
parative study of Wages and Prices. In the minds of 
most people there is a more or less confused notion, sedu¬ 
lously propagated by the myrmidons of the Capitalistic En¬ 
trepreneurs, that wages and prices are intimately connected 
—that wage increases are responsible for price increases, 
etc. A moment's reflection would dispel this altogether 
erroneous impression; for in every instance prices went 
up first; wages were increased afterwards (reluctantly 
enough) to enable wage workers to meet the previously 
advanced prices. In view of which indisputable fact we 
may eliminate wage increases as a cause for price increases; 
just the reverse is true. To say or to lead people to believe 
that wage increases are responsible for increases in living 
costs, is putting the cart before the horse—a deliberate 
falsehood. 1 


A Basic Economic Lie 

I’ll waste no time in verbosely proving what everybody 
knows, that naturally enough wages enter into the cost of 
commodities—but wages is not the only item that enters in; 
as a matter of fact wages are, for many commodities, the 
smallest item. Several economic writers have recently 
stated that wages constitute 70 percent of the cost—an 
absurd statement utterly disproved by hundreds of sets of 
statistics. 

0. A. Mather, a staff writer of the Chicago Tribune, in 

i W. Jett Lauck in a highly interesting and illuminating pamphlet 
of 92 pages, prepared for the United States Railroad Labor Board, 
shows conclusively that increased wages to labor are in no way 
responsible for increased prices. 


341 





342 


The New Capitalism 


an article (October 18, 1921), gives some interesting sta¬ 
tistics pertaining to this subject. According to these sta¬ 
tistics the wages of railroad employees, who, it is dinned 
into our ears, receive the highest recompense of all workers, 
in 1901 represented 38.8 percent of earnings; in 1916, 41 
percent; in 1917, 43.7 percent; in 1918, 54 percent; in 
1919, 55.4 percent, and in 1920, at the peak, 60.0 percent. 

In other industries: Wages in the United States Steel 
Corporation, for example, amounted to 33 1-3 percent of 
earnings; General Motors Corporation 38 percent; Inter¬ 
national Harvester Co. 40 percent. 2 

Some, not content with giving the impression that Labor 
receives the lion’s share of all production, have gone even 
further. Representative J. W. Fordney, author of the 
Fordney Tariff Bill, which contained the notorious “Amer¬ 
ican valuation” plan, speaking before the State Manufac¬ 
turers’ Association in Chicago (September 29, 1921) said: 

“There is not a manufactured article produced in the 
United States in which the labor cost is less than 90 per¬ 
cent of the total cost.” Congressman Fordney may hide 
behind the subterfuge that “wages” and “labor cost” are 
not one and the same thing, but the general public doesn’t 
know how to differentiate; in the mind of the average per¬ 
son the two are closely allied, if not identical. 

James B. Morman, economist for the Federal Farm 
Labor Board, in an article September 17, 1921 issue of The 
Magazine of Wall Street says: “We find that the one 
dominant factor in changing price levels is the labor ele¬ 
ment.” “The cost of labor,” he says further on, “is the 
all-important and general factor.” And then he proceeds 
to explain that in “labor costs” are included not only 
wages actually paid to wage earners, but salaries, commis¬ 
sions, and even profits. Here are his words: 

“Summing up the entire problem we find that the one 


2 In all probability these percentages include salaries of officials, 
managers, etc. If wages paid to wage workers alone were com¬ 
puted, the percentage would be considerably lower than those given 
by the corporations. So, too, would the wages per wage earner be 
less than reported. 



343 


Wages and Living Costs 

dominant factor in changing price levels is the labor 
element. It is true that a few other incidental elements 
enter into and affect prices in the processes of transporting, 
manufacturing and retailing products, but the all-impor¬ 
tant and general factor is the cost of labor. Even what 
are called ‘profits,’ ‘commissions’ and other costs for han¬ 
dling raw materials or goods in unfinished or finished 
form are the ‘wages’ charged by middlemen for services 
of themselves and their employees in the processes of pass¬ 
ing such products on toward the ultimate purchaser for 
use or consumption. The mere difference in terms does 
not alter the principle involved whether the remuneration 
is called wages, salary, commission or profits. ’ ’ 3 

If all these things are included under “labor costs” no 
wonder Congressman Fordney says “labor costs” consti¬ 
tute 90 percent of the total cost. 

I am unable to understand why Labor allows the Capi¬ 
talistic claim that wage earners receive the lion’s share of 
recompense, to go unchallenged. A principle is involved, 
of which wage earners owe it to themselves to make an 
issue. Hasn’t Labor a head as well as a fist? Speaking for 
myself, I should like to have all those who assert that wages 
constitute 70 percent of the cost of commodities, and those 
who, like Mr. Fordney, declare that labor cost is not less 
than 90 percent of the total cost —prove their contention 
—let us say, for example, with regard to steel rails, or any 
other manufactured article for the matter of that; or for 
a commodity such as coal, for example. 

The “Percentage” Device 

But let us pursue our studies anent prices and wages. 
No! Wage increases are not responsible for increases in 
prices of commodities, or in living costs in general. This 
is so obvious that I almost consider it a waste of space to 
dwell at length on this point. The utterly dishonest and 
disreputable Capitalistic device of computing increases in 

3 Excerpt from “Why Commodity Prices Fluctuate,” by James B. 
Morman, in The Magazine of Wall Street, September 17, 1921. 



344 


The New Capitalism 


percentages, is responsible for the wrong impression that 
has taken hold of the average person’s mind—that wage in¬ 
creases are responsible for price increases, or for what 
collectively we call increased living costs. It is to be re¬ 
gretted that the average man or woman has neither the 
time, nor facilities, for examining into this subject. It is 
indeed remarkable that not one of the hundreds of writers 
on economic subjects, whose writings are regularly pub¬ 
lished in the daily press, in financial, trade papers and 
commercial periodicals, have ever gone to the trouble of ex¬ 
posing the scurvy trick. “ There can be no doubt, ” says 
one so-called economic writer, ‘ ‘ that if a hat-maker receives 
$1.50 a day for making hats that sell for three dollars 
apiece, and his wages have been increased 100 percent—so 
that he now earns three, that the increase in wages neces¬ 
sarily raises the price of each hat to six dollars.’’ 

The questions in the case of the hatmaker to be answered 
are: How many hats does the hatmaker turn out in a 
day, and how many cents will his $1.50 (or 100 percent) 
increase in wages add to the cost per hat? But most 
pseudo-economic writers prefer not to bother with such 
trifling details. It seems to be so much simpler, and alto¬ 
gether more convenient and satisfactory, to deal in per¬ 
centages. 

George E. Roberts, Vice President of the National City 
Bank of New York, in one of his pamphlets says: “People 
seem inclined to blame the big corporations, ‘big business,’ 
the ‘trusts,’ or somebody in that category, for the rising 
costs of living. But the price tables show that the prices 
of manufactured goods have increased by lower percentages 
than the cost of the labor and the raw materials that en¬ 
tered into them.” 

This is a typical example of Capitalistic camouflage— 
an artistic blending together of half truths, perversions of 
the truth and just plain lies. I challenge Mr. Roberts to 
substitute for the dishonest percentage basis of figuring 
increases, the dollars and cents basis, which if he will do a 
different state of affairs than he claims, will be revealed. 


Wages and Living Costs 


345 


The “Cent” System versm 
the “Percentage System” 

I call for the abrogation of the Percentage System of 
computing increase in costs and prices, and the substitution 
of the cent system. Let me briefly illustrate the difference 
in principle between the two systems. 

Let us say that when the basic price of hogs was $6.00 
per hundredweight (six cents a pound) the wholesale 
slaughterer sells the hog products to the retail dealer for 
twelve cents a pound; and the retail dealer sells same to the 
public for eighteen cents a pound. 

Now let us say that the price of hogs has gone up to 
$12 per hundredweight—an increase of six cents per pound, 
or rather an increase of 100 percent. This 100 percent 
increase is passed along to the consumer. Under the ex¬ 
tortion of the Percentage System of figuring increases the 
retail dealer now pays twenty-four cents a pound for the 
hog products, and sells same to the public for forty-eight 
cents a pound. The percentage increase formula reads 
about as follows: 

Basic Prices 100 per cent increase 

per pound Prices per pound 

Hogs . 6 cents Hogs .12 cents 

Hog products to dealer. 12 cents Hog products to dealer.24 cents 
Same to the public.18 cents Price of same to public. .48 cents 

The consumer pays three separate 100 percent increases. 

But under the cent system of figuring increases the 
formula would be as follows: 

Basic Prices Six cents increase 

per pound Prices per pound 

Hogs . 6 cents Hogs .12 cents 

Hog products to dealer. 12 cents Hog products to dealer.. 18 cents 
Same to the public.18 cents Same to public .24 cents 

This would be fair and reasonable—the consumer would 
pay the actual number of cents increase in the basic cost 
once, not a 100 percent increase three times (or oftener) 
as is the case under the Percentage System of computing 


increases. 










346 


The New Capitalism 


The Science of Profiteering 

It is under the guise of this Percentage System of com¬ 
puting increases that profiteering has been raised to the 
dignity of a science. It is not difficult to see that since the 
average commodity passes through three or four hands 
before it ultimately reaches the consumer, each person or 
firm figuring percentage of increase, that the sale price 
will reach such a sightly figure, even though the increase 
in wages per unit of production, figured in dollars, or 
cents, is trifling. Thus, for example, if the item of w T ages 
on a given article which the manufacturer sells to the 
wholesaler for one dollar is 30 cents, and the wages go 
up 100 percent, or to 60 cents, the manufacturer will 
raise his price to the wholesaler 100 percent, or to $2.00. 
The wholesaler, who used to sell the article to the retailer 
for $1.50, will now raise the price 100 percent, or to $3.00. 
The retailer, who used to sell it for $2.00, will now sell it 
for $4.00. This example is intended to show the principle 
of the Percentage System in figuring wage and price 
increases. The point to be emphasized is that the 
final purchaser, alias the ultimate consumer, pays 
three (or more) separate 100 percent increases. It is an 
excellent system from the profiteer’s standpoint. 

For the sake of greater emphasis, I’ll repeat, that in all 
cases prices were advanced before wages were increased. 
But even if the wage increases had preceded increases in 
commodity prices, or in living costs, it could be shown 
that in all cases the increase in prices, per unit of produc¬ 
tion, were considerably greater than the increases of the 
workers’ wages. A single specific example will suffice to 
illustrate my contention: 

In 1915, according to the Shoemakers’ Journal, August, 
1921, the amount of wages paid for making a pair of a 
given quality of men’s shoes, was 60 cents; this shoe sold 
retail for $3.50. 

In 1918 the amount of wages paid for making the same 
shoe was $1.02 —an increase in wages of 62 cents per pair; 


347 


Wages and Living Costs 


but the retail price was advanced to $10 and $12 —an in- 
crease to the consumer from $6.50 to $8.50 a pair. 


Steel Prices and Wages 

That the quantity increase in prices, per unit of produc¬ 
tion, is, generally speaking, considerably greater than the 
quantity increase in wages per unit, is bountifully exem¬ 
plified in the steel industry, for which complete data for 
wage and price increases are available. The data for wages 
are from the official announcement made by Elbert H. 

# Gary, Chairman of the Board of Directors, August 19, 
1921; and those for prices are taken from the Iron Age: 




Bessemer 

Bessemer 

Bessemer 

Basic Pig- 



Steel Rail Pig Iron at 

Steel Billets 

Iron F.O.B 



at Mill 

Pittsburgh 

at Pittsburgh 

Furnace 

Feb. 1, 1915 

$2.00 

$28.00 

$14.55 

$19.50 

$12.50 

Feb. 1, 1916 

2.20 

28.00 

21.51 

33.50 

17.69 

May 1, 1916 

2.50 

33.00 

21.95 

45.00 

18.00 

Dec. 15, 1916 

2.75 

38.00 

35.68 

57.50 

30.00 

May 1, 1917 

3.00 

38.00 

45.15 

86.00 

41.60 

Oct. 1, 1917 

3.30 

* 

37.25 

49.38 

33.00 

Apr. 16,1918 

4.80 

55.00 

36.15 

47.50 

32.00 

Aug. 1, 1918 

4.20 

55.00 

36,60 

47.50 

32.00 

Oct. 1,1918 

4.62 

55.00 

36.60 

47.50 

33.00 

Feb. 1, 1920 

5.06 

55.00 

42.90 

55.25 

42.25 

May 16, 1921 

4.05 

47.00 

26.16 

37.00 

22.00 

July 16, 1921 

3.70 

47.00 

22.84 

32.25 

19.38 

Aug. 29,1921 

3.00 

47.00 

21.96 

29.60 

18.20 

* Price not 

given. 






Comment is hardly necessary. The figures speak for 
themselves. Similar price increases can be noted for all 
of the 88 iron and steel products listed in the War Indus¬ 
tries Board’s Price Bulletin No. 33. All conclusively show 
that the dollar and cents increases in the prices of the 
articles produced, were considerably greater than the dollar 
and cents increases in the wages of those who produced 
them. 4 

John Skelton Williams, at the time Comptroller of the 


4 As a matter of fact an official of the Bethlehem Steel Corporation 
himself admits that wage increases are not the principal reason for 
the increase in the prices of iron and steel products. I quote this 
official’s statement further along- in this chapter. 



348 


The New Capitalism 


Currency, in his letter to Elbert H. Gary says, speaking 
of the 1918 report of the United States Steel Corporation: 

“We find that they received an average of $87.70 per 
ton for every ton of the 14,124,986 tons of rolled steel and 
other products shipped to domestic and export trade.” 

According to Mr. Williams “the United States Steel 
Corporation paid out during the calendar year 1918 on 
pay rolls, including administrative and selling departments, 
as well as all manufacturing departments, a total of $452,- 
663,524”—(in other words a trifle more than thirty dollars 
per ton for all w T ages and all salaries). 

Mr. Williams declares that the earnings of the United 
States Steel Corporation “were so large that the Company 
could, during the year 1918, have doubled the salaries and 
wages paid to everyone of its 268,710 employees and offi¬ 
cers, amounting to $452,663,524, and would have had a 
surplus of $96,517,000 left over.” 

From all of which it is clear that the quantity increase 
in the price of steel products was not caused by any 
quantity increase in wages; and that the dollar and cents 
increase in prices was many times greater than the dollar 
and cents increase in wages. 

One Dollar Wage Increase—Two Dollars 
Living Cost Increase 

Those disposed to argue that the tremendous increase in 
retail prices was caused by marked increases in the prices 
of the various materials going into commodities, are involv¬ 
ing themselves in a vicious circle. If the increase in the 
price of every kind of material going into a shoe (or any 
other commodity) is fairly computed in dollars and cents, 
instead of percentages, it will be found that the aggregate 
increase in the price of all materials used does not begin to 
justify the tremendous increase in the price of shoes (or 
other commodities). 

No matter what article you take, whether manufactured 
or one whose production is not complicated with other ma¬ 
terials—coal, for example—if the cent system is used in- 



Wages and Living Costs 


349 


stead of the Percentage System, it will be found that in 
every instance the price increase per unit of production, 
was considerably greater than the increase in wages per 
unit of production. Which being the case, it is unfair to 
Labor and to the public, to pretend that so-called high 
wages are responsible for the prevailing high prices. 

No matter which industry we analyze in an endeavor 
to discover the relationship, if any exists, between wage 
increases and price increases, we observe the same phe¬ 
nomenon. For every dollar of wage increase per unit of 
production, there has been an increase of from two to ten 
(and more) dollars in the price of the commodity con¬ 
sumed. And for every dollar of increase that wage earn¬ 
ers received the living costs increased not less than two 
dollars . When I say this I wish it to be understood that 
I am not guilty of exaggeration; on the contrary I am un¬ 
derstating the actual condition, particularly if we ex¬ 
tend the discussion to cover living costs in general—which 
includes the item of Rent. 

From 1900 to 1914 the cost of living—that is with regard 
to all commodities produced by Labor, or into which the 
element of labor entered—all except rent—practically 
doubled; but wages did not double within the same period. 
In 1900 the cost of living per family was approximately 
$650. By 1914 the cost of living had mounted to $1,100,— 
an increase of $450; whereas the wages per worker had 
advanced from $417 in 1900 to only $580 by 1914 ,—an 
increase of only $163. The only thing that made the situa¬ 
tion endurable was the fact that rents did not rise ma¬ 
terially between 1900 and 1914. For whatever reason land¬ 
lords did not dare to raise their rentals appreciably up to 
that time. 

Doubling the Rent 

From 1914 to 1920 living costs practically doubled. 5 This 

5 In November, 1919, the Bureau of Applied Economics reported that 
the minimum of subsistence level was approximately $1,575 in the 
latter part of 1919 ; whereas the cost of maintaining' the minimum 
of comfort level was $1,760 in June, 1918 ; and approximately $2,000 
in 1919. 



350 


The New Capitalism 


time the landlord took a hand. Rents were practically 
doubled, were increased 100 percent, since that is the 
language some understand best. Why? On account of 
the increase in the wages of those engaged in the building 
trades, some will quickly answer. Indeed? What are the 
facts? The facts are that probably ninety-five percent of 
all the buildings and apartments occupied by tenants were 
built under old wage rates and scales. Many of the build¬ 
ings are ten, fifteen, twenty and more years old—erected 
when all building wages (and materials) were low. But 
for all buildings, regardless of when erected, rentals were 
increased, in round numbers, an average of 100 percent. 
The landlords computed the increases on the basis of 
present day building costs—present day prices for wages 
and materials. They reasoned thus: If w T e had put up 
our building in 1920 instead of in 1900, or 1905, or 1910, 
it would have cost us thus and thus much; therefore we are 
justified in charging rentals based upon 1920 prices of 
w T ages and materials. 6 This is the kind of rotten economic 
logic that is universal today, and not a single economic 
writer, or statesman, to challenge it. 

Wages That Were Never Paid 

Still confining myself to the item of w^ages paid to the 
workers in the building trades, I have shown in a preced¬ 
ing chapter that the tenant pays annual interest on every 
dollar of wages that goes into a building, whether applied 
on the production of the material or for the labor of actual 
construction. That’s bad enough; but to charge the ten¬ 
ants interest on labor that was never performed, and on 
wages that were never paid—is a crime against common 
decency and though sanctioned by “economic laws” and 
“good business practice,” I denounce it as a heinous 
offense against the public. 

And what I say of dwelling places applies with equal 

6 Those with keener vision will probably emphasize the increased 
price of coal, taxes, insurance, janitor’s wages, etc. Very well’ but 
let them compute the aggregate increases in dollars and cents, not 
in percentages. 



Wages and Living Costs 


351 


force to office and store buildings, factories, warehouses, 
storage plants, etc., all of which helps to explain not only 
the increase in the prices of commodities—but living costs 
in general. It is bad enough to compute prices of com¬ 
modities on the basis of higher costs actually chargeable, 
but to compute them on fictitious costs is an economic 
crime that cries to heaven for vengeance. Here we see 
two of the Capitalistic devices employed to exploit the 
public; 1,—the Percentage System; and 2,—charging 
rentals on the basis of what it pleases some to call “re¬ 
placement value.” 

At any rate, out of all this, one thing stands out clear 
and strong, and that is that Labor—the wage earners— 
cannot be blamed for the 100 percent increase in the item 
of rent with regard to 95 percent of buildings. Nor are 
wage earners responsible for the high prices of most com¬ 
modities. 

The Nation’s Tremendous Freight Bill 

By far the greatest increase in the list of “costs” is the 
item of freight. The several freight increases allowed to 
the carriers means that the public is paying freight bills 
amounting to several billion dollars a year over former 
years. Just a few examples, to give substance and edge to 
my statement. 

A lumber dealer, writing to Capper’s Weekly, July 2, 
1921, says in his letter: 

“Ten years ago or less, it cost $5.50 a thousand to put 
lumber in our yard. That is what freight bills called for 
then. Now it costs $21.75 per thousand feet.” 

In the 1921 “literature” prepared by the National Coal 
Association (Washington, D. C.) we read as follows: 

“Freight rates have approximately doubled since 1914. 
Where the average freight rate was about $1.50 a ton in 
pre-war days, the average rate now, so far as it is possible 
to strike an average, is about $3 a ton. For long distances 
from the mines the freight rates run much higher than 
$3 a ton. 


352 


The New Capitalism 

“This increase of $1.50, applied to a yearly production 
of 550,000,000 tons, represents an advance in the cost of 
coal to the consumer of the country over, on account of 
freight charges, of $825,000,000.’’ 

The following is from an item that appeared in the 
Chicago Daily News, October 10, 1921: 

‘ ‘ Relationship between increased freight rates and 
cement prices is shown in a statement prepared by the 
Universal Portland Cement Company. It says in part: 

‘ ‘ ‘ The freight rate from Buffington, Ind., to Milwaukee, 
for example, in 1917 was 23 cents, and now is 49 cents a 
barrel. This is an increase in freight rates since 1917 of 
about 113 percent. 

“ ‘In considering these comparative increases of 37 per¬ 
cent in cement prices and 113 percent in freight rate, it 
should be borne in mind that the effect of increased freight 
rates is not confined to the cost of moving the finished 
product from mill to destination; the higher rates apply 
also on incoming raw materials, and thus affect the cost 
of manufacture as do taxes and other factors over which 
the manufacturer has no control.’ ” 

According to an editorial note by Arthur Brisbane 
(October 10, 1921) : 

“You can buy brick now wholesale at $16 a thousand. 
That sounds cheap, compared with $40 and more not long 
ago. It sounds dear compared with $6 and $8, the old 
price for ordinary brick. But the price of brick makes 
little difference when you consider the price of hauling. 
To haul a thousand bricks less than fifty miles, some rail¬ 
roads charge $15, about 100 percent more than brick used 
to cost delivered, not so long ago. They say ‘Freight rates 
do not affect the consumer.’ They do, if you pay a cent 
and a half to carry one brick fifty miles.” 

Letting the Cat Out of the Bag 

But the most authoritative proof that for many commodi¬ 
ties freight rates, rather than high wages, are responsible 
for the prevailing high prices, we find in the September 


Wages and Living Costs 


353 


1921 Monthly Review Letter issued by the National City 
Bank of New York, of which George E. Roberts, already 
quoted in this chapter, is the author: 

“Mr. Grace, President of the Bethlehem Steel Company, 
has made a statement explaining that if allowance is made 
for the increase in costs due to railroad charges, steel 
products are now lower than before the war. In an¬ 
nouncing new and lower prices for steel products, going 
into effect on July 5th, last, Mr. Grace said: 

“ ‘The increase in freight rates has been the largest 
factor in increasing the cost of manufacturing steel prod¬ 
ucts because the making of a ton of finished steel involves 
the transportation of more than five tons of raw materials. 
The cost factors next in importance are raw materials and 
labor. 

“ ‘Taking as an example the price of structural shapes, 
under the new schedule of prices, 2 cents a pound, or 
$44.80 a gross ton, the comparison with pre-war prices, 
reflecting concretely the three more important cost factors 
is as follows: 

“ ‘ 1st: The increase over pre-war cost in transportation 
on ore, coal, limestone, scrap and miscellaneous supplies 
amounts to $7.85 per ton of finished steel. 

‘ ‘ ‘ 2nd: The increase in the cost of coal, ore, limestone, 
alloys, refractories, lubricants and miscellaneous supplies 
at point of shipment amounts to $7.10 per ton of finished 
steel. 

“ ‘3rd: The increase in the cost of labor under the 
present wage scale, as compared with pre-war wages in 
the steel plant proper, is $5.64 per ton of finished steel. 

“ ‘The figures I have used are the result of actual com¬ 
pilation made by the Company’s comptroller in the every 
day conduct of the business.’ 

“Iron and steel products enter into farm implements, 
railroad costs, and the costs of every line of industry. ’ ’ 

I have nothing to say in comment of Mr. Grace’s state¬ 
ment at this time, except that his figures show that of the 
increase in the price of the finished steel per ton, $7.85 


354 


The New Capitalism 


went to the railroads, $7.10 to the mine owners, and those 
who have a monopoly on raw materials, and $5.64 to labor. 

Needless to say neither Mr. Grace, nor Mr. Roberts of 
the National City Bank, offered the above statement by 
way of exonerating Labor from the unjust charge that the 
high wages paid to industrial workers are responsible for 
high prices. Quite the reverse. The statement is really 
intended as a twin argument for a still further reduction 
in the wages of railroad employees and in the wages of 
industrial workers. The intended inference is that freight 
rates are high on account of the wages railroads are pay¬ 
ing their employees. 

The Monthly Review Letter of the National City Bank 
of New York, from which I have already quoted, mentions 
that reduction in wage rates “probably would permit of 
an even greater reduction in freight rates, particularly if 
it is accompanied by corresponding reductions throughout 
all the industries, because the stimulus given to business 
would increase the volume of railroad traffic. Railroad 
rates are under public supervision, and there is every 
reason to believe that they would be made to conform to 
increased earnings. 

“Finally, such a general reduction of industrial costs 
would reduce the ‘cost of living,’ not only to railroad em¬ 
ployees but to wage-earners, farmers and everybody, in¬ 
crease the purchasing power of the entire population, en¬ 
large the consumption of all products, and improve the 
whole situation.” 7 

The Bach-Fire of Capitalistic Logic 

Harking back once more to Mr. Roberts’ queer statement 
that “the prices of manufactured goods have increased by 
lower percentages than the cost of the labor and the raw 
materials that entered into them”—there is a modicum 

7 The wages of railroad employees were reduced by $400,000,000 
notwithstanding which reduction railroad officials immediately 
announced that freight rates would not be lowered. The evident 
design of the Capitalistic interests is to bring the wages of railroad 
employees down to the level of workers in the industries 



355 


Wages and Living Costs 

of truth in his claim that the increase in the cost of raw 
materials has helped to increase the price of the finished 
product. But Mr. Roberts fails to state that the same 
Capitalistic Entrepreneurs who own the important indus¬ 
tries also have a monopoly on the raw materials—and that 
prices are fixed by them for the raw materials, and the 
finished products independently of the wages paid to the 
workers. And that quantity prices of raw material and 
finished product have been increased far in excess of the 
quantity increase in the tvages of the workers. And since 
freight rates seem to play so conspicuous a part in the 
price of materials and products — and therefore living 
costs—it may not be amiss to emphasize here that the 
same group that controls the industries and raw materials, 
also controls the railroads. 

The Unassailable Fact Stated 

I think I have shown to anyone disposed to be fair, that 
the quantity increase in wages is not responsible for the 
quantity increase in the prices of living commodities, or 
commodities in general. In the first place prices went 
up first; wages were increased afterwards (and generally 
under compulsion) merely to enable wage earners to meet 
the advance in living costs. Moreover, for every one dollar 
increase in wages, living costs went up not less than tivo 
dollars. Under these circumstances the injustice and the 
absurdity of blaming Labor for increases in living costs is 
obvious. 


CHAPTER XXVI 

The Cost of Living Basis of Wages 


A T one of the Chicago theatres recently, several sheep 
appeared on the stage in one of the scenes of the 
play. During the day these sheep were kept in the 
lobby of the theatre as an advertisement. Everybody who 
passed that theatre in the course of a day, paused for a 
moment, or perhaps only turned his or her head to glance 
at the sheep—a unique sight in a crowded city. The sheep 
received no wages or salary, neither for the part they 
played on the stage, nor for their advertising value or 
power. They received nothing but their upkeep. And 
this is precisely the case with the wage earners whose wages 
are computed on the “cost of living” basis. The average 
man or woman who works is allowed nothing more than his 
or her upkeep—clothing, food, shelter. A mere living is 
all that is grudgingly allowed to those who labor for a 
wage. The sheep’s owner has an advantage, in that the 
upkeep of sheep embraces only the items of food and shel¬ 
ter ; nature, not their keeper, provides them with clothing. 

The Servitude of the Workers 

The principle of basing wages upon cost of living is 
traceable all through economic history. For many cen¬ 
turies the economic line of demarkation was sharply drawn 
between master and slave. To the masters belonged the 
earth and all it brought forth through the labor of their 
slaves, their bondmen, their serfs, their servants. All 
property, all rights, all authority, all power, was vested in 
the hands of a few, to whom belonged the land, the riches 
and the treasures; the offices, the honors, and the emolu¬ 
ments. The right of the few to rule, to govern, to com¬ 
mand, to take, to own, to control, was never questioned by 
the poor. There is no sense in denying that from the be- 


356 


Cost of Living Basis of Wages 357 


ginning of what it pleases ns to call civilization, society was 
founded on slavery. Servitude was universally considered 
as the natural state of the poor; misery and wretchedness 
as their normal condition; hardships and suffering as their 
portion by ancient heritage. A bare existence was all that 
was allowed them; it was all they expected, and they were 
disposed to be grateful even for that. 

Taking it all in all, it is not strange that those who had 
grown rich and become powerful through the toil of others, 
and who were accustomed to keep for themselves the entire 
usufruct of labor, did not readily accept the idea of re¬ 
warding those who in former times had served them without 
any recompense whatever. Nor is it remarkable that when 
the absolute necessity of rewarding those who toiled had to 
be recognized, the same old principle of allowing those 
who labor just enough recompense to enable them to live, 
was applied. 

Wages Around A. D . 1650 

Adam Smith, the first edition of whose noted work, ‘ 4 The 
Wealth of Nations/’ was published in 1776, writing “Of 
the Wages of Labor,” relates that: 

“Lord Chief Justice Hales, who wrote in the time of 
Charles IT, computes the necessary expense of a laboring 
family, consisting of six persons, the father and mother, 
two children able to do something, and two not able, at 
ten shillings a week, or twenty-six pounds a year. If they 
cannot earn this by their labor, they must make it up, he 
supposes, either by begging or stealing.” 1 

It is not my purpose to examine into Adam Smith’s 
views with regard to w T ages, but to his credit be it said 
that he favored a liberal wage, not, perhaps, so much as 
a reward of labor as on account of the advantage that 
would naturally accrue to the wealthy from the greater 
contentment, and the greater industry of the laboring 
class; and particularly because it encouraged marriage 

i Adam Smith says that Chief Justice Hales “appears to have 
inquired very carefully into the subject.” 



358 


The New Capitalism 


among the poor and stimulated their fecundity, thus in¬ 
suring for industry “the multiplication of laborers,” which 
“multiplication,” needless to say, implied cheaper labor 
and consequently bigger profits for those who owned both 
the capital and the wealth. 

The “Law” of Wages as Stated by Ricardo 

Ricardo, whose “Principles of Political Economy and 
Taxation” was published in 1817, is considered to have 
been the first to formulate the principles underlying the 
law of wages. He says (Chapter V), in his discussion on 
“Wages”: 

“The power of the laborer to support himself, and the 
family which may be necessary to keep up the number of 
laborers, does not depend on the quantity of money which 
he may receive for wages, but on the quantity of food, 
necessaries and conveniences become essential to him from 
habit, which that money will purchase. The natural price 
of labor, therefore, depends on the price of food, necessaries 
and conveniences required for the support of the labourer 
and his family. With a rise in the price of food and neces- 
aries, the natural price of labor will rise; with the fall in 
their price the natural price of labor will fall. ’ ’ 2 

According to the Economists—’Tis an Iron Law 

The writings of Adam Smith and his contemporaries in 
the eighteenth century, and those of Ricardo and his dis¬ 
ciples in the nineteenth century, have, with such modifica¬ 
tions and adaptations as became necessary by changes, 
been accepted as representative and standard by the en¬ 
tire group of political economists of the twentieth cen¬ 
tury. This is particularly true with whatever concerns 
the laboring class, and as regards the subject of their 
wages. As a consequence the relative economic condition 
of the workmen of today is in no wise an improvement 
over the economic condition of the laborer who lived in 
the time of Charles II. Wages, relative to living costs, 

2 Ricardo also says: “There is no other way of keeping - profits 
up, but by keeping - wag'es down.” 




Cost of Living Basis of Wages 359 


are no greater than the wages of the laborer of two or 
three centuries ago. 

The Old Wage Law in Modern Clothes 

Dogberry has said that “comparisons are odorous,” and 
indeed they are sometimes, but if so it is because the things 
compared themselves are foul. Yet comparisons, if made 
in a spirit of fairness, are often illuminating, if not edi¬ 
fying. Let us attempt a comparison between the laboring 
family which around the middle of the seventeenth cen¬ 
tury received a recompense of twenty-six pounds a year, 
and whose necessary living expenses were computed at ten 
shillings a week—and the laborer (and his family) of more 
modern times. If it is permissible, for the sake of conveni¬ 
ence, to account the value of the pound at around five 
dollars in our money, then the seventeenth century com¬ 
mon laborer and his family received a yearly wage amount¬ 
ing to $130—which was then considered a sufficient amount 
for a family of six. Evidently the $130 was not an 
average income for all families; it would seem that the 
earnings in many cases were not sufficient to meet the 
necessary living costs, for we are told that “if they can¬ 
not earn this by their labor, they must make it up, either 
by begging or stealing.” 3 

How does this amount of wages paid in 1650 in England, 
compare with the amount of earnings of American artisans 
two centuries later in the United States ¥ From the sundry 
statistical records I have examined I can but conclude that 
there is no unity of agreement as regards the amount of 
wages paid in the United States in the first half of the 
nineteenth century. Even those computations for the sec¬ 
ond half are based on partial statistics or incomplete data 
for certain industries. Wherever we may find them, from 
whatever source they may have been derived, or however 
they may have been computed, no scientific value attaches 

3 The chronic inadequacy of the wages of English laborers for 
the necessaries of life is repeatedly observed by James E. Thorald 
Rogers in his work “Six Centuries of Work and Wages.” 



360 


The New Capitalism 


to them. They are at best approximations, in many cases 
guesses, but the best available. 

According to Professor Willford Isbell King, the average 
yearly money wages per man were as follows: (Table 
XXXI, p. 168.) 


Census Years Average Money Wage 

1850.$ 204 

1860. 265 

1870. 397 

1880. 323 

1890. 398 

1900. 417 

1910. 507 

1915. 600 4 

1920. 1200 4 


My own data and computations would lead me to believe 
that Professor King’s statistics, especially for the years 
1850 to 1900, are rather low as an average for all workers. 
However, I am quite willing not to press my own findings, 
preferring to accept those of a recognized authority. 

It is to be noted here that in point of quantity the wages 
of an American wage earner in 1850 were less than a hun¬ 
dred dollars higher than the income of an English laborer’s 
family in 1650. The contrast in economic and industrial 
conditions between 1650 and 1850 is so great that a com¬ 
parison is impossible, and I shall attempt none. The one 
point I want particularly to emphasize here is that wages 
have always advanced at a slow rate. To illustrate this let 
us take the “family” income of the English laborer of 1650 
and the family income in the United States, which in 1850, 
according to Professor King, was $535. Consequently the 
increase has been at the cumulative rate of about two dol¬ 
lars a year. 

I shall leave this subject at this point, merely wishing to 
say that when we consider wage increases it will be observed 
that the quantity of wages increased at a rather conserva- 

4 Professor Friday, in his book “Profits, Wages and Prices’’ says 
that wages had risen by 1919, so that the average wages will prob¬ 
ably exceed $1,300 per annum, or more than twice the average wages 
of 1914. The money wage for 1915 and 1920 is a compromise estimate 
of conflicting computations made by various “authorities.’’ I con¬ 
sider it a liberal estimate. 












Cost of Living Basis of Wages 361 

tive rate; always after the living costs had advanced; and 
always lagging away behind the quantity increases in living 
costs. Generally speaking—since 1900, for every dollar 
increase in wages, living costs advanced two dollars. 

Wage Increases Always Inadequate 

That is the one lesson we learn from a study of statistics, 
particularly when each person correlates them with his 
own experiences and observations. All through the years, 
particularly during the past twenty-five years, living ex¬ 
penses rose first, and wages generally under compulsion, 
were reluctantly advanced later to enable those most con¬ 
cerned to meet the mounting living costs. Never (with the 
possible exception of the years from 1917 to 1920) were 
wage increases equal to the living cost increases that had 
preceded. In 1919, when wages had reached their zenith, 
the average wages per worker were considered as between 
$1200 to $1300. In November of 1919 the Bureau of 
Applied Economics (Washington, D. C.) computed that 
“the annual cost of maintaining a family of five at a mini¬ 
mum of subsistence level at prices prevailing in the latter 
part of 1919, was approximately $1575.’ ’ 5 

Two Important Points 

With regard to the wage increases made during the years 
1917-20, I have examined and computed hundreds of sets 
of statistics that have come to me regularly from the vari¬ 
ous departments of the Government, and hundreds of pri¬ 
vate compilations of hundreds of sets that appeared in the 
leading trade, industrial and financial publications; besides 
sundry works dealing with economic questions, and a num¬ 
ber of corporation reports. To save the readers’ time, and 
space in this book, I will briefly summarize my findings 
and conclusions with regard to that group engaged in the 
manufacturing industries. 

I. The average wage around 1915 was less than $600 a 

5 In the April Number, 1922, of the “Monthly Labor Review” pub¬ 
lished by the U. S. Department of Labor, we are given the informa¬ 
tion that the yearly increases of miner’s families averaged only 
$1,590.65 while the average expenditures per family was $1,705.86. 



362 


The New Capitalism 


year per worker. According to Professor Friday, who has 
made a fairly thorough inquiry into the subject, and whose 
computations are based on the latest available statistics up 
to the beginning of 1920, “The annual wages in 1914 of 
employees of manufacturing corporations were $685 per 
employe. ” It is to be observed, however, that Professor 
Friday’s figures include industrial wage workers and sal¬ 
aried employees within the industries. According to the 
Census Statistics there were in 1914 in the various manu¬ 
facturing industries, 7,036,337 wage earners, whose total 
wages were $4,079,332,433—an average of $580 per worker. 

2. The sundry increases in wages, since 1914, even 
granting that they would have increased wages 100 percent, 
did not yield an average wage for all industrial workers of 
$1200 a year. 

This figure was, beyond a doubt, exceeded by some work¬ 
ers in certain industries, but it is not an average for all 
workers in all industries. 

Deceptive Statistics 

As a matter of fact the average increase fell below 100 
percent. 6 True, in many instances I have seen, the increase 
of total wages in cities and states exceed 100 percent—but 
this is offset by the fact that the increased volume of wages 
was distributed among a greater number of workers, the 
division yielding often an average of less than a thousand 
dollars per worker. For example, in the city of Wilming¬ 
ton, Delaware : 7 

In 1914 the average number of wage earners was 15,048; 
and the aggregate wages was $8,674,000. 

In 1919 the average number of wage earners was 21,414; 
and the aggregate w^ages was $19,352,000. An increase in 
wages of 123.1 percent. 

6 In its Bulletin No. 274 the Bureau of Labor statistics gives 
the “Union Scale of Wages and Hours of Labor, May 15, 1919.” Its 
report is based on “912,000 union workers in the organized trades and 
occupations of 61 of the principal cities of the United States.” “In 
all trades taken collectively the income in weekly wage rates on 
May 15, 1919, was 43 percent over 1913. 

7 The statistics are those of the Department of Commerce, pub¬ 
lished by the Bureau of the Census. 



Cost of Living Basis of Wages 363 

That sounds big, but when actually computed we find 
that in 1914 the average wage per worker was $577, and in 
1919 it was $900. It must be apparent to all, that in spite 
of the 123.1 percent wage increase for 1919 it was $675 
below the minimum subsistence level. 

Or let us take a state —Rhode Island, for example. The 
statistics are as follows: 

1914 1919 Percent of 

Increase 

Wage earners 113,425 139,665 23.1 

Wages $59,366,000 $137,671,000 131.9 

But when wages are computed we find that in 1914 they 
were $523 per worker, and in 1919, $987 per worker, a 
money increase of $464, or an increase of 89 percent. 

There is but one obvious conclusion; the workers were 
decidedly underpaid in 1914; nor was their relative condi¬ 
tion improved in 1919. In all cases—for all cities and 
states—the large percentage increase in wages, computed 
in dollars and cents, did not begin to enable them to meet 
the large money increase in the cost of living. As already 
pointed out, the only thing that saved the situation for all 
wage earners was the fact that in a majority of cases more 
than one worker contributed to the support of a family. 

Statistical Wages of Steel Workers 

The United States Steel Corporation is supposed to have 
paid the highest wages to industrial workers, particularly 
during the period of the war. One writer, Edward A. 
Bradford, says: ‘‘Never were such wages paid as now. 
Some manual workers in the steel industry earn $10,000 
a year. ” 8 

Professor David Friday says: ‘ * The average wage per 
man in the United States Steel Corporation was $905 in 
1914, $1,042 in 1916, and $1,902 in 1919.” 

It is to be regretted that Professor Friday did not 
explain at the same time that the ten and twelve-hour day 

8 The Annalist, January 28, 1918. Is it permissable to aslc Mr. 
Bradford: “How many wage workers in the steel industry earned 

$10,000 a year?” 



364 


The New Capitalism 


was still in force for a considerable number of employees in 
the plants of the United States Steel Corporation, and that 
the figures he gives are not wage rates but actual earnings, 
i. e.y all wages received including overtime. 

The following news item, published in the Chicago 
Tribune, August 2, 1921, sheds light on the wages paid to 
the workers in the United States Steel Corporation plants: 

“New York, Aug. 19, 1921.—(Special)—The United 
States Steel Corporation today announced another adjust¬ 
ment in the wages of its employees, the third to be put into 
effect since the decline in steel prices began. . . . 

“The official announcement made by Elbert H. Gary, 
chairman of the board of directors, follows: 

“ ‘In view of the prevailing low selling price of steel as 
compared with costs of production, it is necessary to make 
reductions in wage rates, and therefore we will recom¬ 
mend to subsidiary companies that the general rates of day 
labor be decreased to thirty cents per hour, to become 
effective Monday, August 29, and that other wages and 
salaries be equitably adjusted.’ ”... 

The following Table shows wages of unskilled labor after 
each advance in wages since 1915, the percentage of each 
advance and the cumulative advance of each, with statistics 
for the last three adjustments: 


1915 

10 hr. day 
$2,00 

Advance 

Percent Advance 

Feb. 1, 1916 

2.20 

10.0 

10.0 

May 1, 1916 

2.50 

13.6 

25.0 

Fee. 15, 1916 

2.75 

10.0 

37.5 

May 1, 1917 

3.00 

9.0 

50.0 

Oct. 1, 1917 

3.30 

10.0 

65.0 

April 16, 1918 

4.80 

15.0 

90.0 

Aug. 1, 1918 

4.20 

10.5 

110.0 

Oct. 1, 1918 

4.62 

10.0 

131.0 

Feb. 1, 1920 

5.00 

10.0 

153.0 

May 16, 1921 

4.05 

*20.0 

102.0 

July 16, 1921 

3.70 

t 9,5 

85.0 

Aug. 29, 1921 

3.00 

*18.9 

50.0 


* Reduction. 

t Elimination of time and a half for overtime work over eight 
hours. 


Cost of Living Basis of Wages 365 

It is to be remembered that in spite of recent modifica¬ 
tions the ten and twelve-hour day is still in force in the 
several plants of the United States Steel Corporation. The 
twelve-hour day is still defended by Mr. Gary as impos¬ 
sible of abrogation. If the earnings per worker in 1919, 
amounting, according to Professor Friday, to $1902, were 
computed at the highest rate ever paid, viz., about fifty 
cents an hour, it will be found that the average steel worker 
worked approximately twelve hours a day in order to earn 
$1902. 

At the wage rate of August 29, 1921—$3.00 for a ten- 
hour day, or thirty cents an hour—a steel worker working 
eight hours a day and three hundred days a year, would 
earn $750 a year. But there has been no material decrease 
in living costs. Despite the much advertised decrease in 
the wholesale prices of some commodities, the retail prices 
have remained singularly inflexible. And for many com¬ 
modities the quality has been lowered to such an extent as 
to necessitate purchasing double the former quantity. On 
an average, especially when we include the item of Rent, 
the $1575 considered necessary for a mere subsistence, is 
just as necessary today as it was in 1910. 

“The End of a Perfect Bay” 

But granting for the present that the wage earners for 
a period of two or three years were, indeed, “in clover”; 
that the wages they received were the highest that had ever 
been paid them in the history of the world; and that wages, 
considering that an average family draws its support from 
more than one worker, were more nearly adequate, per¬ 
haps even in some instances more than adequate, to meet 
even the considerably higher living costs—granting all 
that, and anything you may care to add in order to 
bolster your possible contention that the wage earners’ 
condition, especially during the years 1917-1920 was ex¬ 
cellently fine; granting aught you might say on this sub¬ 
ject—I will put a deadly period to your sentence by de¬ 
claring that the brief season of the wage earners’ glory is 


366 


The New Capitalism 


permanently over; and that all the Capitalistic machinery 
is in full motion to take away from them every temporary 
advantage that might have been grudgingly granted them 
under stress of extraordinary circumstances; and that 
within another few years all wage earners and families 
of wage earners, will find themselves precisely in the same 
economic condition they were in in former times; nay, 
they will probably be worse off than ever- before. 


The Plight of the Salaried Employees 

Ill go a step further and say that after the Capitalistic 
Entrepreneur “ readjustment” will have been completed, 
not only the industrial wage earners but all workers—all 
non-investors—will find it increasingly harder to make 
ends meet than ever before. 

It is rather singular that nearly all writers who have 
essayed to deal with the subject of wages and living costs, 
base all their conclusions on computations regarding wages 
paid to industrial workers. And yet there are many mil¬ 
lions more who are in the group known as salaried work¬ 
ers, for whom, as well as for the industrial workers, there 
have been two separate 100 percent increases in living 
costs, but for most of them there has been no proportionate 
increase in salary. 

To illustrate what I mean suppose we take the statistics 
for the salaried officials, clerks and so forth, in the manu¬ 
facturing industries as given in the 1920 Statistical Ab¬ 
stract (Table No. 447, page 804) ; those for 1919 are from 
the Department of Commerce Summary of Manufactures. 


Salaried Officials, Salaries 

Clerks, etc. 


1899 

364,120 

$ 380,771,321 

1904 

519,556 

574,439,322 

1909 

790,267 

938,574,967 

1914 

964,217 

1,287,916,951 

1919 

1,447,761 

2,893,046,000 


Average Salary 
Per Person 
$1045 
1106 
1188 
1136 
1998 


Please remember that from 1896 to 1914—the cost of 
living advanced 100 percent; to meet which the salaried 
workers, as the above statistics indicate, had an average 



Cost of Living Basis of Wages 367 

increase of less than a hundred dollars. From 1914 to 
1920 there was another distinct 100 percent increase in 
living costs, and an increase of only $862 in salaries. 

I have no intention of going into an analysis of salaries 
as distinguished from wages. To do so in any worth-while 
manner would require many pages. My reason for calling 
attention to this consistently ignored phase of the subject 
at this time is to emphasize that ordinarily when we speak 
of wages as having gone up 100 or more percent during 
the past five or six years, the increase is applicable to a 
limited number of wage earners only. It is true, let us 
say, for eight or ten million, but it is not true for fully as 
many others who statistically are not accounted as wage 
earners. According to the Monthly Labor Review (March, 
1922) published by the United States Department of Labor, 
the per capita salaries increased only 50 percent during 
the five-year period 1914-1919. Yet the increase in the 
living expenses of these salaried employees during that 
period, was fully 100 percent. 

If we lump salaries and wages, and particularly if we 
subtract from the total salary roll the enormous salaries 
of officials and principals, in which the average small sal¬ 
aried person shares only statistically, it will be found, I 
believe, that the average money increase in the pay per 
worker was considerably less than the money increase in 
living costs. I doubt whether the average increase from 
1914 to 1919 in wages and salaries per worker, would ex¬ 
ceed 60 percent. But remember that the increase in the 
cost of living was 100 percent for 100 percent of the work¬ 
ers—whether wage earners or salaried employees. It is 
clear that this subject concerns the salaried men and 
women even more than the so-called wage worker. 

Looking Ahead 

But what was yesterday is of less importance than what 
will be tomorrow. Therefore, let us determine what the 
economic condition of the non-investors will be after the 
Capitalistic Entrepreneurs will have completely “adjusted” 


368 


The New Capitalism 


wages and salaries. I shall try to give the readers a simple 
and easily comprehended answer. 

For the present I will overlook the fact that the cost of 
living increased from 1896 to 1914 a round 100 percent, 
and that wages were not increased in proportion. In order 
to simplify my contention I am going to proceed for the 
present as if the increase in wages and salaries from 1896 
to 1914 had kept pace, dollar for dollar, with the increase 
in the cost of living. In which event I am assuming that 
in 1914 the average family wage income of the average 
wage earner and salaried employee, sufficed to enable them 
to meet the prevailing costs of living. Consequently we 
may express it thus: In 1914 one dollar of wages or salary 
was equal to one dollar of living cost. 

Wages 1914 Living Cost 

$1.00 $1.00 

Then prices began to ascend rapidly, so that the living 
costs in 1920 were 100 percent higher than in 1914. It is 
to be emphasized here that the 100 percent increase in the 
living costs is predicable of 100 percent of the population. 
But most of those working for a wage or salary are un¬ 
organized, and only those who are organized succeeded in 
compelling a material increase in their wages. Let us say 
that in the aggregate the increase in wages and salaries, 
if distributed among all the wage and salary workers, was, 
in round numbers, 60 percent. That is to say, for every 
dollar of wages the average wage earner or salaried man or 
woman received in 1914, he or she received $1.60 in 1920, 
whereas the one dollar living cost of 1914 had risen to two 
dollars by 1920. The formula may then be expressed as 
follows : 

Wages Living Cost 

1914-$1.00 1914 $1.00 

1920- 1.60 1920_2.00 

Capitalistic Unwillingness to Loiver 

Living Costs 

The Capitalistic campaign which is still in full swing, 
has certain clearly defined objects in view. First of all it 


Cost of Living Basis of Wages 369 

was inevitable that the prices of some commodities should 
fall. 9 But it is apparent to those who study price sched¬ 
ules, that those who have been the beneficiaries of big 
profits from high prices will not permit prices to fall to 
the 1914 level. Hundreds of statements of public speakers, 
writers, bankers, merchants, statesmen, government offi¬ 
cials, et al., could be quoted here to show the declared 
determination and avowed purpose of the Capitalistic 
group that prices of commodities shall not go back to the 
1914 level. A few will suffice as pointing a moral, as well 
as adorning a tale. For example: 

Elbert H. Gary, of the United States Steel Corporation, 
declared repeatedly during 1920 and 1921, that steel prices 
would not come down. Since his last utterance steel prices 
have been lowered, but they are still far above the 1914 
prices. 10 

Henry C. Wallace, the new Secretary of Agriculture, in 
his first public statement, said: “This talk of bringing 
prices, whether farm prices or other prices, back to the 
pre-war normal, is morally wrong and economically impos¬ 
sible.” In a later statement Secretary Wallace repeated 
the above utterance with a few more trimmings: “We can 
pay off our debts much easier if we maintain a price level 
more nearly the level at which the debts were incurred.” 

Col. John P. Wood, of Philadelphia, (President of the 
American Woolen Co.) appearing before the Finance Com¬ 
mittee having the Fordney Emergency Tariff Bill under 
consideration, on behalf of the wool manufacturers said 
that the government had been “unwise” in promulgating 
a campaign against high prices. 

The Manufacturers Record, which blames the Federal 

9 While beyond a doubt some of the wholesale prices of com¬ 
modities were lower in price in 1921 than they were in 1919, and 
1920, nevertheless the increase in the item of Rent has robbed the 
average man or woman of whatever advantage might be derived 
from lower commodity prices. The aggregate “living costs” remain 
about the same, the difference being that a greater proportion goes 
to the Capitalist in the role of landlord and a smaller proportion to 
the Entrepreneur in the role of commodity producer, manufacturer 
or dealer. 

10 Steel prices are again in the ascendent. 



370 The New Capitalism 

Reserve Bank for price reductions, in its issue of Febru¬ 
ary 24, 1921, said: “The war of the Federal Reserve Bank 
to break down prices and prosperity was a crime against 
civilization,” etc. 

(Parenthetically let me say that I could give hundreds 
of quotations from the writings and speeches of bankers, 
merchants, statesmen, etc., saying in effect that wages must 
come dow?i nearer to the pre-war basis.) 

The New Level of Prices and Wages 

At any rate my guess (it is more than a guess, but so as 
not to be compelled to enter into a lengthy discussion I’ll 
call it simply a guess)—my guess is that the new level of 
prices will be fixed about midway between the prices of 
1914 and 1920; that is to say: the article that cost $1.00 in 
1914, and had risen to $2.00 by 1920, will cost $1.50 from 
now on. 

On the other hand the Capitalistic campaign contem¬ 
plates bringing down wages and salaries as near as possible 
to the 1914 level. From the wage cuts made thus far for 
the various kinds of labor, (reductions ranging from 10 to 
25 percent for skilled labor, and from 25 to 50 percent for 
unskilled labor) I compute that the cut in wages and sal¬ 
aries will average 25 percent for all workers—wage earners 
and salaried men and women. That is to say, the wage 
earners and salaried men and women will have their 
average 1920 wage of $1.60 cut 25 percent, which will 
leave them $1.20 or twenty cents more for every dollar of 
wages over the wages of 1914. The formula now reads as 
follows: 

Wages Living Cost 


1914. $1.00 $1.00 

1920 . 1.00 2.00 


1922 and thereafter. 1.20 1.50 

This, I think, is a result that the average wage earner 
and the moderate salaried man and woman can verify with 
actual figures as pertaining to themselves. To bring the 
whole subject nearer to the actual figures, let us say that 





Cost of Living Basis of Wages 371 

the average weekly wage of the average worker in 1914 was 
$20.00, and that this amount enabled him or her to just 
meet the cost of living. The formula then reads as follows: 

Wages Living Cost 

1914 .$20.00 1914 .$20.00 

1920 increase 60%. 32.00 1920 increase 100%... 40.00 

1922 decrease 25%. 24.00 1922 decrease 25% 30.00 

Here you have the arithmetic of the prices and wages 
situation as it will be from now on, about as clearly as it 
can be expressed when averages are employed. 

The Old Level of Profits 

The Capitalistic campaign, however, includes another 
fixed purpose, not observable on the surface. If the Cap¬ 
italistic Entrepreneurs can succeed in stabilizing com¬ 
modity prices midway between 1914 and 1920, so that they 
will receive henceforth $1.50 instead of $1.00 as in 1914; 
and lowering wages down to a point where they will pay 
$1.20 for labor for which they paid only $1.00 in 1914, it is 
clear that they will enjoy a margin of profit considerably 
in excess of that they reaped in 1914. But that is not 
enough to satisfy the Capitalistic Entrepreneurs; they will 
not willingly give up their maximum war time profit. If, 
therefore, they can succeed in reducing the number of 
workers, at the same time increasing output per worker; or 
increasing the number of hours; or eliminating those por¬ 
tions of their contracts with labor by which they are com¬ 
pelled to pay time and a half for over time;—if they can 
succeed in increasing by one method or another Labor’s 
production, without an increase in wages, they will have 
succeeded in creating a condition by virtue of which their 
aggregate volume of profits will approximate the aggregate 
volume of war time peak profits. 

The Corollary 

At the same time they will have created a condition 
which will have brought the average American workman 
nearer to the level occupied by the average European 






372 


The New Capitalism 


workman. The ability to save will be practically taken 
away from the average man and woman. The labor of two 
persons will be required to enable the average family to 
merely subsist. A bare living, and in many cases not even 
that, will be the rule rather than the exception. As Chief 
Justice Hales expressed it—“If they (the workers) cannot 
earn this by their labor they must make it up by begging 
or stealing. ” This, it has seemed to me for years, is the 
“ideal’’ the Capitalistic group is striving to achieve. I 
cannot shake off the feeling that there is this definite design 
behind the whole Capitalistic-Mammonistic scheme. 

If the Capitalistic Entrepreneurs succeed in putting 
through their program—and thus far they have been suc¬ 
cessful in having their own way—the American Standard 
of living will be nearer than ever to the European standard 
of living; and the condition of the wage earners and sal¬ 
aried employees will, in a few years more, be hopeless. 


CHAPTER XXVII 

Wages Under the New Capitalism 

I N the several chapters dealing with Wages, I hope I 
have succeeded in giving an intelligible interpretation. 
At any rate, I think I have made clear at least these 
few things: 

1: That Capital does not pay wages. 

2: That Labor pays its own w r ages. 

3: That Labor pays the interest on its wages. 

4: That a big quantity wage with a low ex¬ 
change value (or purchasing power) is of 
no advantage to the wage earners. 

If these elementary propositions are tenable it behooves 
the New Order to bring about an early and scientific adjust¬ 
ment of the Wages question under the New Capitalism— 
one that will give those who work a fair and reasonable 
wage, and to the people greater benefits and more advan¬ 
tages, than accrue to them under the ‘‘established” Cap¬ 
italistic Order. 

Let me emphasize once more that the important thing 
about wages is their exchange value. Indeed if I were 
compelled to choose between a system of a big quantity 
wage and a low exchange value, or a less quantity wage 
and high exchange value, I would, by all odds, choose the 
latter. But whatever our views with regard to the quan¬ 
tity, or the exchange value, of wages may be, we must 
accept the situation as we find it. 

The Capitalistic Entrepreneur group has declared over 
and over, that anything higher than a subsistence wage 
cannot be paid; that the paying of wages in excess of a 
bare living would mean the destruction of the industries. 
I hold a contrary opinion; to my way of figuring the pay¬ 
ing of fair and reasonable wages does not mean the destruc- 


373 



374 


The New Capitalism 


tion of the industries, but it does mean a material reduction 
in the enormous Capitalistic profits, without which the 
Capitalistic-Mammonistic Entrepreneur System cannot 
flourish. However, to be perfectly fair, we will take the 
Capitalistic Entrepreneurs at their word. We will accept 
as basic the wage rates and scales that may be in existence 
at the time we begin to function. 

Our Chief Endeavor 

Our chief endeavor will be to bring down the cost of 
living. If we cannot assure those who labor of a larger 
quantity recompense for, say eight hours of work a day, we 
can guarantee them a material reduction in the prices of 
the things they must purchase during sixteen hours a day. 

Let none harbor delusions with regard to what we pro¬ 
pose to do, and what we shall aim to accomplish. Assuming 
that we will organize into a compact national body—with 
organized Labor as the nucleus—(for without the active 
help and co-operation of organized Labor all efforts will be 
useless, nothing can be accomplished)—our initial aim will 
be, not to increase wages, but rather to bring down the prices 
of commodities—the cost of living—in brief, to increase 
the exchange value of wages. 

For millions of families in the United States the present 
wage is not sufficient to enable them to meet the ordinary 
living expenses. Indeed were it not for the fact that in 
many of these families there are several members working, 
dire poverty would be their doom. All the statistics con¬ 
clusively show that the wages per worker are considerably 
below the minimum family subsistence level. The only 
thing that saves the situation is this quite accidental fea¬ 
ture, predicable of a majority of families, that more than 
one person is at work. It is their joint and aggregate earn¬ 
ings that enable the average family to get through. If each 
male worker were married and the sole support of an aver¬ 
age family of five, poverty would be prevalent among all 
wage earners; while if families were dependent upon the 


Wages Under the New Capitalism 375 

wages paid to female workers, they would long ago have 
sunk into misery and wretchedness. 

We propose to change this in due time. To keep down 
the wages of a worker below a living standard on the theory 
that there are other workers in his family—wife, daughters 
or sons, sisters or brothers, and that between them they can 
manage to “get by,” is only keeping the road to the poor- 
house open, and the jails well filled. 

A Fundamental Principle 

Fair and reasonable wages for all workers will be a fun¬ 
damental principle under the New Capitalism. If too low 
wages are being paid in any line of industry, or for any 
kind of service, it will be our earnest purpose to raise them 
to a point where they will be fair and reasonable. If, on 
the other hand, it will be found that for certain kinds of 
work or service, excessively high wages are being paid, we 
shall seek to make what must be considered a fair and 
reasonable adjustment. But I rather think that by the 
time this book is published, the Capitalistic System will 
have completed the “liquidation” of all wages, and that 
we shall not be obliged to waste any of our time revising 
wages downward. For several years now we have been 
told, with maddening insistence, that some groups of work¬ 
ers are receiving unconscionably high wages. But no stress 
has been put on the fact that only the wages rates are high 
—that the actual annual earnings of those engaged in occu¬ 
pations in which high wage rates prevail, constitute only 
an average living wage. No particular stress has been 
placed on the very vital fact that many of the workers 
receiving high wage rates work only part of the time. Nor 
has it been deemed worthy of emphasis that all wage earn¬ 
ers are being paid with considerably depreciated wage 
dollars. 


Labor Will Fix its Own Wage 

The New Capitalism will insist on a fair and reasonable 
wage for all workers. There is, and can be, no such thing 


376 


The New Capitalism 


as a fixed wage applicable for any and all kinds of labor. 
There is skilled and unskilled labor; there is labor that is 
productive and labor that is non-productive; there is labor 
that is menial, requiring no high order of intelligence for 
its performance, and labor that demands more than ordi¬ 
nary intelligence. The scientific classification and grading 
of service, and determining its fair and reasonable reward, 
is part of our plan. It will be our endeavor, in due time, 
to determine what constitutes a fair and reasonable wage 
for each of the different kinds of labor. But whatever kind 
of work or character of labor, or quality of service, one 
thing is certain—that wages must be ample, and not merely 
intended to enable the wage earner and his family barely 
to subsist. In my system of economics even the lowest wage 
implies an excess of sufficiency for subsistence. For I hold 
that even the humblest worker, and his family, is entitled to 
more than a bare subsistence; just as I hold that any indus¬ 
try that cannot flourish save by paying less than subsistence 
wages does not deserve to survive. 

It is to be remembered that my proposal provides that 
the scientific adjustment of wages and wage rates, shall be 
made by those most concerned—by Labor in the aggregate, 
acting through accredited representatives. Hitherto Cap¬ 
ital alone has dictated wage terms, and Labor had no 
alternative but to accept them. Henceforth, Labor will 
decide for itself what is a fair and reasonable wage for every 
kind of work and service. This important matter settled 
to the satisfaction of all concerned, means the end of strikes 
—“a consummation devoutly to be wished.” 

Wages, and a Margin of Profit 

A standard wage, that shall also be permanent, i. e., not 
subject to fluctuations), and always ample, that is, a wage 
which after the exchange involved in the purchase of the 
necessary living commodities leaves a reasonable surplus in 
favor of those who work for wages—would yield not only 
a satisfactory solution of the wage question but solve prac¬ 
tically all of our economic difficulties. One would not— 


Wages Under the New Capitalism 377 

one could not—quarrel with a wage whose quantity is not 
only always adequate for the purchase of the essentials of 
life and its implied reasonable comforts, but always some¬ 
what greater than the purchase price of the things involved 
in the maintenance of a comfort level of living. 

I hold that there is a point somewhere—precisely where 
I am unable to say, though under my system it can and 
will be ascertained—at which wages could be permanently 
fixed and prices practically stabilized, which would yield 
to Labor a fair recompense, and to Capital a fair profit, 
besides maintaining a nicely balanced economic equilibrium 
between income and living costs, wages being always some¬ 
what in excess of living costs, thus leaving a margin of 
profit (surplus or savings) to the wage earner. 

Capital is Uncompromising 

Up to the beginning of the twentieth century the ten¬ 
dency of Capital was to increase its profits by keeping 
down wages. But with the inauguration of the scientific 
Capitalistic Entrepreneur System, Capital became more 
ambitious, and determined to increase its profits not only 
by keeping wages low but also by gradually increasing 
prices. But this seriously disturbed the exchange value of 
wages and the purchasing power of money, partially to 
recover which Labor found itself put to the necessity of 
demanding progressive wage increases. These were reluc¬ 
tantly granted. But the Capitalistic Entrepreneurs, hav¬ 
ing tasted of the flesh-pots of Egypt—i. e., garnered a 
greater profit—refused to be driven from their banquet 
table, and sought to maintain the greater profit by still fur¬ 
ther increasing prices, mendaciously blaming the somewhat 
higher wages they were compelled to pay to Labor. And 
thus it continued all through the years, and all through 
the war, up to the end of 1920. 

Then we entered upon what it pleased some to call the 
“liquidation or re-adjustment” period. Capital first low¬ 
ered wages, then, reluctantly, prices, though in no case, if 
fairly computed in dollars and cents, have prices been 



378 


The New Capitalism 


lowered to the same extent as wages. The liquidation is 
not yet completed; the adjustment is still going on. How 
long it will take Capital to finish the job I am unable to 
say. But I will venture the guess that in the final summing 
up, Labor will find itself worse off than ever before. 

Capital is Unwilling to Share in Losses 

The Capitalistic philosophy demands that when the 
profits are big, i. e., largely in excess of normal, Capital 
shall keep them all for itself; Labor is not to share in them. 
But when profits are small, falling even a fraction below 
normal, Capital immediately insists that its deficit be made 
up out of the wages of Labor. 

In all the Capitalistic palaver about “cutting down 
costs” it has never occurred to a single contingent in the 
Capitalistic group to suggest cutting down anything but 
wages. Labor must bear the brunt of any “saving” it is 
desired to affect. The Capitalistic group is unwilling to 
apply any “saving” device to itself—to Capital. It is 
quite willing to deduct from Labor's wages enough to make 
up for any loss; but never willing to deduct even a fraction 
of the loss from Capital's reward. If there is business stag¬ 
nation ; if the wheels of commerce do not move; if the chan¬ 
nels of trade are clogged and it is necessary to ‘ ‘ save,' 7 the 
only source whence the Capitalistic group is willing to 
“save” is from Labor's reward—from Labor’s wages. 

The Capitalistic group insists upon its pound of flesh— 
in sunshine or in rain, in fair weather or in foul. Let the 
evil days come; they fall entirely upon the shoulders of 
Labor. Let the fat years reign—never in all its history 
has Capital been willing to accord to Labor more than a 
bare living wage—not even in its most prosperous times. 
Let the lean years set in, Labor, not Capital, pays the pen¬ 
alty. If there is scarcity of consumption, the wage earner 
suffers, not Capital. If there is scarcity of production, 
again the wage earner pays. I hold that when things go 
awry, for whatever reason, Labor should not be made to 
bear the entire burden; Capital should be made to share it 


Wages Under the New Capitalism 379 


—to bear at least a part of it. If the conditions are dis¬ 
turbed or abnormal, Capital tries to save its own bacon by 
compelling the workmen and women to accept a smaller 
wage, in order that its profits may remain the same as in 
normal times. 

Labor Always at the Mercy of Capital 

The Capitalistic System has built up its brutal strength, 
its despotic might, its cruel power, on the principle of 
“earning power,” but when Capital’s earning power does 
not come up to expectation, when it falls below 6 percent, 
Capitalists reimburse themselves out of the pay envelope 
of those who labor. 

The ‘ ‘ earning power ’ ’ of Capital and the exchange value 
of wages, are in direct conflict; as the one rises the other 
is bound to fall. The increase in the earning power of 
Capital is derived chiefly from the decrease in the exchange 
value of wages. Conversely it should be true that a decrease 
in the earning power of Capital produce an increase in the 
exchange value of wages. But no such phenomenon is 
observable. The whole intent of the Capitalistic System is 
to prevent this perfectly natural phenomenon from taking 
place. Whenever for whatever reason, a decrease in the 
earning power of Capital threatens the Capitalistic System 
insists on a decrease in wages—and thus maintains its max¬ 
imum earning power—its maximum profit. There is no 
escape for the wage earner from the adverse operation of 
this Capitalistic device. No matter which way the wind 
blows—Capital always protects itself—Labor always suffers. 

Stabilizing Wages and Prices 

However, in this chapter I want to show the solution my 
system proposes. We will ascertain the point of safety for 
Labor and Capital; at which we shall endeavor to stabilize 
wages and prices, thus stabilizing the exchange value of 
wages and the purchasing power of money. This stabiliza¬ 
tion will be made at a point that will leave a fair profit 
for Capital—and a fair profit, that is a wage, that will 


380 


The New Capitalism 


leave a surplus or savings over living costs—to Labor. 
That is one of the primary purposes of the system of eco¬ 
nomics I am proposing in this book. 

Let me summarize the essential features of my plan with 
regard to wages and prices. It is intended: 

1: To establish an equilibrium between wages and prices; 

2 : To increase the exchange value of wages; 

3: To increase the wage earners 7 ability to save. 

The Government of the United States has declared that 
the dollar shall be a unit of value, and the equivalent of 
one hundred cents. Our Capitalistic Entrepreneurs how¬ 
ever, have decreed that the exchange value of the wage 
dollar, and its purchasing power, shall be considerably less 
than one hundred cents. The New Capitalism intends to 
recover a considerable portion of the dollar’s lost value by 
standardizing wages and stabilizing prices; thus materially 
increasing the exchange value of wages and the purchasing 
power of money. 

The economic stability and the commercial safety of our 
nation, and the material welfare, not to say happiness, of 
the people, depend upon the very elementary principle that 
the value of money be practically permanent, its purchas¬ 
ing power nearly stable, and the exchange value of wages 
free from serious fluctuations. This principle, I hold, can 
be permanently established and maintained, chiefly by 
organized Labor. 

Depreciation of the “Human Machine” 

Nor is that all that organized Labor can accomplish 
under the New Order, and through the instrumentality of 
the New Capitalism. Labor can raise its status to a height 
not attainable under the “established” Capitalistic Order. 
At present the average worker is only a wage earner, who 
in order merely to live is compelled to exhaust his capital 
(i. e., his labor) and consume his dividends (i. e., his 
wages). In brief, the wage earner is nothing more than a 
machine, but receiving less consideration at the hands of 
Capital than the machines in shops, factories, mines and 


Wages Under tlie New Capitalism 381 

mills, and for which the Capitalistic System carefully com¬ 
putes “depreciation.” But not for the wage earner—the 
human machine; no allowance is made by Capital for 
“depreciation” of the human machine, or for its obso¬ 
lescence, or exhaustion. 

“A Modern Instance” 

Slason Thompson, statistical expert for the railroads, 
said in 1914 that the average holdings of the railroad stock¬ 
holders was $15,000. What does this mean? It means that 
if all the railroad stock were divided equally among the 
stockholders, each “investor” would be allotted $15,000 of 
stock. With this as a basis let us make our computations. 

Needless to say the average railroad stockholder, as far 
as the properties in which he holds stock are concerned, is 
a non-producer—a non-worker. Nevertheless he receives 
in the course of twelve months, dividends which, computed 
at 6 percent per annum, amount to $900—an amount 
greater than the average railroad employee, working eight 
hours a day, and probably in excess of 300 days a year, 
receives as wages. 1 

Continuing our computations: At the end of twenty- 
five years the average railroad stockholder will have 
received in dividends a total of $22,500, for which not one 
hour of labor has been given, not an hour of service 
rendered; and his capital of $15,000 still remains intact, 
and its earning power at its full strength. 

Whereas, at the end of twenty-five years the average rail¬ 
road employee will have received in wages a total of $20,250, 
for which he has given 11,500 days of labor—92,000 hours 
of service. It will be conceded that a man who toils eight 
hours a day for tw^enty-five years, has expended consider¬ 
able of his strength; and that his earning power decreases 
with his productive power. A few years more and his 
capital (labor) is exhausted, and his dividends (wages) 
will cease. He is ready for the economic scrap pile. 

If at the end of twenty-five years the average railroad 


i In 1914 the average wage per railroad employee was $810. 




382 


The New Capitalism 


stockholder dies, he leaves to his heirs $15,000, after having 
drawn $22,500 in dividends. Whereas the average railroad 
employee, having been compelled to consume both his cap¬ 
ital and his dividends, will probably be buried at his 
children’s expense. 

The Smoke Screen “Small Investor” 

But, the stock of the railroad is not equally divided. 
The $900 per stockholder is only a statistical distribution, 
based upon that precarious device called, in this particular 
case, “average holdings.” The average small investor has 
no such income. I do not pretend to know what the yearly 
income per small stockholder is, for, information that would 
enable one to make computations is not available. But I 
will venture to guess that in the case of the railroads, the 
average small investor receives only a fraction of the sta¬ 
tistical $900. I should say somewhere between $100 and 
$200, and I consider that a liberal estimate. 2 The lion’s 
share, that is $700 or $800 of each “average investor’s” 
statistical dividend revenue, goes to a few thousand big 
stockholders—the financial potentates who annually con¬ 
vert their collective and concentrated incomes into vast 
new Capital accumulations, while the average small stock¬ 
holder, in all probability, is compelled to consume the 
income derived from his small holdings. 

The Wage Earner’s “Reserves” 

One would not quarrel with the Capitalistic System, 
which has persistently excluded the human machine—the 
wage earner—from participation in any depreciation fund, 
if it were disposed to be more liberal with regard to his 
wages. But Capital has never been willing to accord to 
Labor a wage that would enable each worker to build up 
a reserve against the calamitous years when his earning 
power becomes less, or he is incapacitated through infirmity, 
sickness, accident, or other causes. 

2 In 1914 Mr. Slason Thompson declared that the average yearly- 
return on railroad investments for the past twenty-five years “has 
not averaged three percent.” Let the small investors in railroad and 
other Capitalistic securities take note. 



Wages Under the New Capitalism 383 

A wage that is calculated to merely allow a wage earner 
and his family to live, deprives the wage earner of the 
opportunity to accumulate a surplus against contingencies 
and eventualities. Under my system the wage earner will 
be enabled to do for himself what Capital has either refused 
to do for him, or has deliberately prevented him from doing 
for himself. Under my system the wage earner will be 
more than a mere machine. He will be a component part 
of the industry in which he is employed. For the work he 
does he will receive a wage as at present—not, however, a 
mere living wage, but an ample wage that will enable him to 
set up protective reserves—both a depreciation fund and 
a surplus fund. 

The Wage Earner Investor and Capitalist 

Moreover, he will deposit his earnings in banks whose 
funds are used by himself, not by speculators and gamblers. 
Thus he will be given an opportunity to invest his savings 
for his own benefit—rather than for the benefit of others. 
Whatever profits will be derived from the investment of 
his savings and reserves, will accrue to himself and not to 
persons who give not an hour’s work to the industry—who 
perhaps, do not even know wdiere the properties in which 
they are security holders are located—who have never set 
foot in the plants from which they derive dividends—or 
who, perhaps, are not even residents of the United States. 3 

Briefly my plan contemplates increasing the number of 
investors considerably, to such an extent that practically 
all wage earners and salaried men and women, will be, or 
at least could be, small investors, deriving separate incomes 
from their labor and their investment, during the greater 
part of their lives. 

I may be boasting when I say that we will succeed in 
doing what the Capitalistic Entrepreneurs, with all their 

3 Prior to the war it was estimated that about five billions of Euro¬ 
pean capital was invested in American securities. One wrtier went 
so far as to say that more than ten billions of English Capital is 
invested in the United States alone. I give these figures as mere 
estimates. 



384 


The New Capitalism 


“brains” have failed to do, what they are so desperately 
trying to do at the present time—viz., to greatly increase 
the number of small “investors.” Under my plan all the 
workers—that is to say a majority of the public who are 
now and will continue, under the Capitalistic Entrepre¬ 
neur System, to be classed merely as w T age earners, will have 
an opportunity to change their status from non-investor 
to investor and capitalist. We will make stock owners , not 
stock holders of them; co-partners in our enterprises; 
co-owners of our properties; co-sharers in all the benefits 
accruing to an investor and in the profits reaped by a 
Capitalist. 

No Altruism in Business 

There is not a single instance on record of any man, or 
group of men, going into business primarily to promote 
the public welfare. The sole impetus has ever been the 
desire to make money; the prime motive— Profits. The 
railroads of the United States were built not so that people 
might conveniently and cheaply travel whithersoever they 
please, or that they might have their supplies transported 
from the place of production to their homes at a minimum 
cost. Nor were they built for the purpose of giving employ¬ 
ment to a considerable number of people. The inspiration 
for their building must be sought wholly in the vision of 
immense profits for their builders and promoters. And 
this perfectly natural aspiration is predicable of every suc¬ 
cessful industry. If any benefits redound to the public at 
large, or to any considerable number of the public, that is 
always incidental, or, which is more likely, because in the 
promulgation of benefits the profits were to be found. 
Profits, ever and always, were the inspiration, the im¬ 
petus and the beacon light. Profits—and “the public be 
damned! ’ 9 

Profits Under the New Capitalism 

Will we turn up our noses at profits? We will not! 
Indeed there is one good thing about the tremendous price 


Wages Under the New Capitalism 385 

increases and concurrent wage increases that have been 
made during the past twenty-five years. It will give the 
New Capitalism a fine opportunity to prove its value to 
the workers—to that large group who are today non¬ 
investors. Here is the formula: High prices and high 
wages have yielded immense profits to the Capitalistic group 
and constituent members of the Capitalistic System. We 
accept the status quo. We accept the high prices and the 
high wages. We will maintain wages at the high point and 
then deliberately, gradually, systematically, reduce prices 
—i. e., living costs. The corporate profits quite naturally, 
will be less—but the savings of the individuals will be 
greater. These savings are profits in the true sense of the 
word, but instead of appearing conspicuously on the books 
of our corporations they will appear conspicuously in the 
pockets of the workers. Instead of being retained by a 
few, as at present, our profits will be distributed among 
the many through the medium of lower prices, i. e., as a 
result of a greater exchange value of wages and a higher 
purchasing power of money. 

In brief, there will be no elimination of profits; the only 
difference being that henceforth they will be savings. More¬ 
over, these savings will become Capital accumulations, con¬ 
vertible into investments, the normal returns or dividends 
on which will accrue to the savers themselves as investors, 
not as at present, to the Capitalistic users of the savings 
of the wage earners. 

Projits and Capital Accumulations 

There are those who will say that the maintenance of 
high wages and the lowering of prices are mutually ex¬ 
clusive—that it is impossible to pay high wages and reduce 
living costs. Well, we shall see whether they are right; we 
propose to find out for ourselves. In the meantime let us 
not forget that the capital accumulations during the past 
twenty years have been at the rate of ten billion a year. 
These immense capital accumulations were derived from 
the bountiful Capitalistic profits accruing from sundry 


386 


The New Capitalism 


sources; inflation of capitalization, money monopoly, 
monopoly of raw materials, manufacturing industries, 
transportation systems, public utilities, speculation in farm 
products, exorbitant rentals,—and from stock gambling. 

Under my system the capital accumulations will not be 
so great. Indeed it is for the specific purpose of cutting 
down capital accumulations that we propose to organize. 
Since there will be no money monopoly as it exists today 
there will be a considerable reduction in the “profits” 
derived from this source alone; but a greater saving will 
result to the public. With regard to the industries—we 
will have no inflated capitalization; no dividends to pay 
on non-existing capital. This will decrease “profits” but 
increase savings. And since there will be no speculating 
in our stocks possible, a source of revenue now wide open 
to promoters, speculators and gamblers will be practically 
cut off. All of which will have a tendency to cut down 
what has hitherto been called in Capitalistic parlance, 
profits, or capital accumulations. But savings will increase. 

Let me illustrate the principle: Let me say that in a 
given year twenty-five billions of wages were paid, and that 
living costs totaled twenty-five billions. The exchange of 
the twenty-five billions of wages for twenty-five billions of 
living Commodities, yielded a profit that enabled a few 
million of the Capitalistic System to heap up say, five bil¬ 
lions of capital accumulations. 

Under the New Capitalism wages would remain the same 
—twenty-five billions—but living costs would be lowered to 
twenty billions, let us say. The difference, five billions, will 
remain in the possession of the wage earners as savings. 
That is the vital difference that I shall ask you to keep 
constantly in mind. Their savings will become the capital 
accumulations of the workers, whose income from wages 
will be augmented by an income from their investments. 

“How can a nation be rich without having rich men in 
it?” asked a financial writer recently. 

I will answer that question after the writer quoted 
answers these few questions: 


Wages Under the New Capitalism 387 

1: Wliat is the difference whether the aggregate of a 
nation’s wealth—for instance that of the United States, 
said to be 288 billions—is owned by four million families 
or by twenty million families? 

2: Which nation is richer—the one whose productive 
properties are owned by four million families of investors 
or by twenty million families of investors? 

3 : Is it preferable that the profits derived from the indus¬ 
try of the nation’s workers be concentrated in the hands of 
a few, or more widely diffused among the many? 

4: If the national income in 1918 w’as, as claimed, fifty- 
five billion, would the nation be poorer today if the uncon¬ 
sumable portion were reinvested by twenty million families 
rather than by only four million of the twenty million 
families ? 

I could ask a few other pertinent questions, but these will 
suffice for the present. 

And Mammonism Must Bleed to Death 

Let it be understood that I have never, and I do not 
now advocate, what is sometimes spoken of as an “equal 
division” of profits or of wealth. Against such proposals 
I set my teeth. But I do demand that henceforth the pres¬ 
ent non-investor public—the wage earners—shall be given 
a greater opportunity of saving a fair part of their w r ages, 
and an opportunity of investing their savings in enter¬ 
prises that belong to them rather than in enterprises that 
belong to a mighty few. And that they, rather than the 
mighty few, shall receive whatever profits might accrue 
from the joint investment of their capital (savings) and 
their labor. 

If this can be done (and the whole purpose of my book 
is to show that it can be done), the problem of the distri¬ 
bution of profits and wealth will be solved in a manner 
that is legitimate, fair and just. And the evil of Mam¬ 
monism—the concentration of all the wealth in the hands 
of a few, will cease to afflict us. 


CHAPTER XXVIII 

The Cost of Living Under the New Capitalism 

T HROUGHOUT this work I have endeavored to con¬ 
fine myself strictly to facts and figures, all of which 
I have used as a basis for my various statements, con¬ 
tentions, computations, deductions and conclusions. In 
this chapter I am going to indulge my fancy just a little, 
and even allow my imagination to roam at will. 

Let me, therefore, continue to suppose the existence of 
the New Order, and that the New Capitalism has begun to 
function. It will take at least one year to raise the initial 
$300,000,000. Beyond a doubt, with all potentialities ex¬ 
ploited to the fullest extent (as can be seen from Chapter 
XIX) we could raise the requisite initial capital within 
ninety days; but that is not desirable, for the reason that 
before we can effectively employ our capital it will be 
necessary to thoroughly and completely organize, and plan 
our campaign—measuring every step of the way, and the 
distance we are to go. And this, I figure, will take at 
least twelve months, during which time—be it remembered 
—we would be accumulating $300,000,000 of our Basic 
Capital Fund. We shall hardly care to begin aggressive 
operations before that time. Even after setting ourselves 
in motion the effects of our operations will not be materially 
felt during the first year; not until the following year will 
we be able to show unmistakable results. I say this pre¬ 
ferring to be conservative in making promises, or painting 
visions, or raising hopes, for I would rather surprise all 
those who will be interested in watching our progress, by 
exceeding their expectations, than disappoint them by fall¬ 
ing short of their fulfilment. 


388 


Cost of Living Under New Capitalism 389 

Briefly summarized the endeavor of the New Order under 
the New Capitalism will be to bring the living costs of the 
average wage earner (or non-investor) family down to a 
point that will leave a surplus of wages to be invested by 
the wage earners themselves, in enterprises that will yield 
an income in addition to wages. 

The Normal Level of Living Costs 

But before we can establish a normal level of living 
costs, it behooves us to ascertain what can be considered a 
rational and attainable level. Precisely where is a normal 
or rational level of living costs to be found? In what year 
can it be said that living costs were at a normal or rational 
level? In 1896 prices were at their lowest; the dollar had 
its greatest value; wages their greatest exchange value. Is 
this the normal or rational level? 

I shall say no! But even if it were—and if returning 
thither were desirable and the ultima thule of all economic 
endeavor, the return trip would have to be so slow as to 
become wearisome to the travelers. It would have been 
easier ten years ago; today it is well nigh impossible, and 
we may just as well dismiss the thought from our minds, 
once and for all. Moreover, the war has produced certain 
economic effects that must be reckoned with—that cannot 
be ignored. To make a long story short I have set as an 
attainable goal the living costs of 1915—not, however, by 
the familiar Capitalistic Entrepreneur method of lowering 
wages first. In fact my plan does not contemplate the 
cutting of wages; on the contrary it insists on the main¬ 
tenance of prevailing wages. 

The Living Costs Per Family 

Let us confine ourselves for the present to the subject of 
“living costs/’ and see how they mounted under the 
aegis of the Capitalistic Entrepreneur System, and of 
which mounting the Capitalistic Entrepreneurs were the 
principal beneficiaries. 

The cost of living for an average family in 1900 was 


390 


The New Capitalism 


about $650 a year. This cost increased in the last twenty 
years about as follows : 

4/ 


Average yearly 
increase. 

1900 .$ 650 

1910 . 850 $20.00 

1915 . 1,100 50.00 

1920 . 1,5501 90.00 


The increases were less by leaps and bounds than by a 
steady, gradual growth. For the first ten years of the 
Capitalistic System the increases were at the rate of about 
$20 a year. For the next five years, at the rate of about 
$50 a year. From 1915 to 1920, at the rate of about $90 
a year. All the increases were cumulative and are now 
permanent. If there is no marked recession in the retail 
prices of all classes of commodities, or a .considerable 
increase in quality (and matters in this regard will grow 
worse instead of better under the Capitalistic Entrepreneur 
System) ; if rents remain at their present high figure, it 
means that from now on every average family will pay 
$900 a year more each calendar year than in 1900, or $9,000 
during the next ten years. It means that the 16,000,000 
non-investor families henceforth—thanks to the ingenuity 
of the Capitalistic arrangement—will pay $14,400,000,000 
a year more for the bare privilege of living then they did 
twenty years ago. Think of it!—$14,400,000,000 a year, or 
a total of $144,000,000,000 during the next ten years. 

Under the New Capitalism we propose to bring down the 
living costs, not suddenly but gradually, steadily, and pro¬ 
gressively. We propose to reduce them at the rate of about 
$50 a year. Within five years we would bring down the 
cost of living commodities from $1550 to about $1350; and 
within ten years to approximately the 1915 level, i.e., to 
about $1100. This reduction would mean a saving of $450 
a year for an average family, or a saving of $4,500 in ten 
years per family. 

i Throughout this book I have conservatively considered $1,500 
as the living cost of an average family, in s.pite of the fact that 
unbiased statisticians have computed that a family can not live in 
decent comfort for less than $2,000, some even claiming $2,600 as 
a minimum. 







Cost of Living Under New Capitalism 391 

This means an aggregate saving for the 16,000,000 non¬ 
investor families of $7,200,000,000 a year, or $72,000,000,000 
within ten years. 

Take your choice, my fellow workmen and non-invest¬ 
ors! Under the old Capitalism you will be compelled to 
pay to the Capitalistic System during the next ten years 
$144,000,000,000 more than the living costs of 1900. 
Whereas, under the New Capitalism you will be enabled 
to save $72,000,000,000 within ten years. 

Paying Tribute to Caesar 

It ought to be possible to bring living costs down to less 
than a thousand dollars a year, but several elements will 
make this difficult, if not impossible. This check on our 
ability to lower living costs much beyond the 1915 level, 
is, in a measure, due to the fact that we will have to contend 
for a while with adverse conditions created by the Capital¬ 
istic Entrepreneur System which cannot be remedied all at 
once. It must be remembered that the Capitalistic group 
has a monopoly on practically all the basic materials that 
enter into industry; coal, iron, lumber, oil, etc. Under the 
circumstances the basic materials, and consequently, fin¬ 
ished products, will cost more than they would if they were 
not monopolistically controlled. In due time we mean to 
break this monopolistic stranglehold on the basic raw ma¬ 
terials, and finished products, but we realize that it will 
require time to bring this about. The outstanding feature 
of the situation is that the giant Capitalistic Entrepreneurs 
have so powerful a grip on many of the important materials 
and products that for a while we shall be compelled to pay 
tribute to them. Their monopoly in due time will be broken 
—that is part of my plan; but I should not care to set a 
time limit for the present. 

The Nation’s Tremendous Freight Bill 

I have already shown that the same group that abso¬ 
lutely controls the nation’s finances, and has a monopoly 
of the basic materials and the industries, also owns and 


392 


The New Capitalism 


controls the transportation systems of the United States. 
I shall waste no time in expatiating on what is generally 
known, that the increase in the nation’s freight bill has 
more than doubled within recent years. A glance at the 
following statistics 2 for the “freight revenue” of the rail¬ 
roads, will show this conclusively. 


R. R. Freight 
Revenue. 

1900 .$1,049,000,000 

1910 . 1,925,000,000 

1920 . 4,373,989,717 


A chapter could easily be written on this subject; there 
is so much to say about it. But at the present moment I 
am concerned only with one feature, and that is, that as 
conditions are, or rather will be after the railroads have 
“adjusted” the wages of all the railroad employees, the 
nation will be compelled to pay, annually, considerably 
more freight on its commodities than in former years. In 
due time the New Order will demonstrate the possibility 
and urgency of relief from this tremendous item of freight 
charges; but nothing can be done immediately. All that is 
said here is for the purpose of emphasizing that it is one 
of the formidable handicaps which the Capitalistic System 
has constructed, and with which we shall grapple as best 
we can for the first decade of years. 

Inflated Real Estate Values 

There are other disadvantages under which we will be 
compelled to operate for some time—thanks to the iniqui¬ 
tous principles established by the Capitalistic System. I 
refer particularly to the system of arbitrarily inflated 
values of properties. Inflation is universal; it applies not 
only to the properties from which the basic materials are 
derived, and to the manufacturing industries—basic or 
derivative—it is predicable of all kinds of properties—par¬ 
ticularly land. Real estate values everywhere, or, more 
properly speaking, real estate prices , have been doubled 


2 Railway Statistics of the United States, for 1920. 






Cost of Living Under New Capitalism 393 

and trebled, many increased tenfold, tlianks to the stimulus 
for speculation and for “profit-taking” given to the real 
estate speculators by the Capitalistic System. 

The increase in the value, or rather in the prices , of city 
property since the adoption of the Capitalistic System’s 
method of computing “values” has been enormous. Natu¬ 
rally the inflation of “values” means higher rents and 
consequently a bigger “overhead expense,” all of which 
has increased prices to the non-investor group, and is likely 
to prevent the cost of living from coming down to its ulti¬ 
mate normal level for some years to come. The increase in 
rentals, within recent years, instituted throughout the 
United States, is responsible for a considerable increase in 
living costs. I do not mean only the rents paid by indi¬ 
viduals and families, but also the rents for offices, stores, 
factories, warehouses ,etc., and which find their way back 
into the living costs. I should say that the average is easily 
100 percent increase. 

The rentals of stores, sho^s, offices and lofts, were, during 
the war, raised from fifty to three and four hundred per¬ 
cent. This was brought out in the Lockwood Committee 
investigation in New York. Increases of fifty percent were 
so common, Samuel Untermyer, Committee Counsel, said, 
that he would not trouble himself to read them into the 
record. 

“Some of the buildings named by Mr. Untermyer were, 
the Standard Oil Building, 26 Broadway, where it was 
charged, one rent was increased from $1,500 in 1916 to 
$4,700 in 1921, and another from $15,000 in 1920 to $32,000 
in 1921; Corn Exchange Building, 15 Williams St., from 
$1,200 in 1918 to $2,400 in 1921; 470 Fourth Avenue, 
$4,500 in 1920 to $12,000 in 1921.” . . . 

“Among the many instances of increased rents was one 
where a tenant whose lease called for $9,000 two years ago, 
now pays $24,000 for the same suite. 

“There were some cases where offices renting five years 
ago for a few hundred dollars, were leased this year for 
several thousand dollars. Tenants who paid $2 a square 


394 


The New Capitalism 


foot last year in a down-town sky-scraper, sign leases for 
1921 requiring payment of $6, $7, and $8 for the same 
space. ’ ’ 3 

The conditions that exist with regard to the increases in 
rentals applies to all the cities in the United States. Thou¬ 
sands of small business men and women have been forced 
out of business because their rent had been raised to a point 
that made continuance unprofitable. 

The Crushing Burden of Taxes 

But even though it were possible to break the Capital¬ 
istic Entrepreneur stranglehold with regard to monopolies 
and inflated values and high rents, within a single year’s 
time, there are two items which we cannot of our own 
ability reduce, namely the taxes that have arisen out of 
the recent war, and the tariffs. Briefly stated, the Federal 
Government collects, and will indefinitely collect, from the 
twenty million families, annually, from four to five billion 
dollars a year in taxes. In the Mid-Month Review of Busi¬ 
ness, September 15, 1921, published by the Irving National 
Bank of New York, statistics compiled by George W. Norris, 
Governor of the Philadelphia Reserve Bank, pertaining to 
the annual governmental expenditures, are given. Before 
the war these were computed to be $33 per family of five. 
Now they are $214.80 per family of five. 

Surely there is none to dispute that the wage earners— 
the non-investors—pay the major portion of all taxes 
directly and indirectly. 

The following is an excerpt from an article ‘ * The Crush¬ 
ing Burden of Taxation,” published in The Boston Com¬ 
mercial , April 8, 1922: 

“The Boston Chamber of Commerce has been collecting 
some data from state and federal sources to show the bur¬ 
den of taxation, which was borne by the citizens of Massa¬ 
chusetts that year. From them we have been making a few 
calculations that deserve more than passing notice. 

“In the year 1910 the internal revenue taxes collected in 


3 Commercial Edition Chicago Herald-Examiner, June 10, 1921. 



Cost of Living Under New Capitalism 395 


Massachusetts were $7,400,000, and state, county and local 
taxes totaled $85,800,000, or a combined tax on the people 
of Massachusetts of $93,200,000. The population of Mas¬ 
sachusetts in 1910 was 3,366,000, which made a per capita 
tax of about $28. Taking the census figures of 4.3 persons 
to a family, the tax per family in 1910 was $120 or $2.30 
a week. 

“Ten years later the federal government levied on Mas¬ 
sachusetts for $259,000,000 and the state, county and local 
tax was $198,000,000, or a total tax of $457,000,000, an 
increase of 400 percent. In 1920 the population had in¬ 
creased to 3,852,000, making the per capita tax nearly 
$120, and the family tax approximately $520 or ten dollars 
per week. 

“It is idle to claim that these taxes are paid by anyone 
but the ultimate consumer and the ultimate consumer on 
whom the burden falls the heaviest is the man who works 
for wages.” 

George Wheeler Hinman, writing in the Herald-Ex¬ 
aminer (February 10, 1921), says that Congressman Sisson 
told the House of Representatives a few days ago that the 
total expense of all the Governments in the United States 
—national, state, county and city—are $15,000,000,000 a 
year. This means that ‘ ‘ the average man with a family of 
five has to pay, in one way or another, some $750 as his 
share. He may pay it directly in taxes, or indirectly in 
prices, or partly in taxes and partly in prices; but he has 
to pay it somehow.” 

Whatever the exact amount of federal, state, county and 
municipal taxes paid by the average family, it is apparent 
that in the aggregate taxes constitute a burden of tremen¬ 
dous proportions, for the lifting of which the New Order 
does not pretend that it can fashion an Archimedian lever. 
But while we can promise no immediate relief from taxes, 
the whole subject of Taxation will be studied from the 
standpoint of the ultimate payer of all taxes—and a way 
may be found to lighten the load. 


396 The New Capitalism 

The Tariff Tax 

Then there is the Tariff. What the Tariff means to the 
average family may be judged from the following excerpts 
from a speech on the Fordney Tax Bill, by the ITon. Percy 
E. Quin, of Mississippi, published in the Congressional 
Record, July 13, 1921: 

“Today it takes one-third of the cost of all products to 
pay the railroad transportation. You have raised the 
transportation of railways more than $1,000,000,000 yearly, 
and yet in power all of this time and nothing has been done 
to stop it. The gentleman from Kansas (Mr. White) yes¬ 
terday quoted from the President’s message where he said 
that the rates of transportation would have to come down. 
This was one of the great evils of the day. Today in the 
United States the annual cost to the American people for 
railway transportation is $4,000,000,000. The annual tax 
of municipal and county taxes—State and Federal—makes 
a total of $9,000,000,000; four and a half or five billions of 
that is out of the Federal taxation power of the United 
States Government, and through this monstrous bill you 
propose to put through here you are going to take out of 
the taxpayers of the United States at least $3,000,000,000 
or $4,000,000,000 more money, and less than $500,000 or 
$600,000 of it will go into the Treasurj^ of the United 
States. Where does the difference between the amount that 
goes into the Treasury and that which comes out of the 
pockets of the people of this Republic go ? You are putting 
it into the coffers of the rich, the corporations, trusts, and 
partnerships of this Republic.” 

On June 25, 1922, Senator David I. Walsh, of Massachu¬ 
setts, made public statistics showing that the increased rates 
in agricultural products in the tariff bill, under discussion 
in the Senate, will add $13.15 annually to the cost of living 
of every individual in the United States: “At the very 
period when we are attempting to deflate the enormous 
costs of production and the excess prices prevailing as a 
result of war conditions, it is proposed to increase the cost 


Cost of Living Under New Capitalism 397 

of living to the American people to the extent of $1,316,- 
569,449 per annum.” 

The Tariff question will be carefully studied by us—from 
the non-investor’s standpoint, and not from the Capital¬ 
istic standpoint. 

Increase in Price and Decrease in Quality 

But while our hands will be tied for some years to come, 
with regard to a number of the fortuitous items that find 
their way into the cost of our sundry living commodities, 
there are some things with regard to which we will be strong 
enough to compel amelioration. For example: There is 
one point in the 11 cost of living ’ ’ which no one seems so far 
to have discovered or discussed; nor do the various index 
numbers take it into consideration, viz., that for a large 
number of articles, such as clothing, shoes and sundry kinds 
of wearing apparel—textiles and fabrics—not only are 
prices practically double what they were in 1914 but the 
quality has been materially reduced, thus putting the whole 
nation to the necessity of buying approximately double the 
quantity. For all these items the increase has been not one 
hundred percent, but nearer three hundred percent. Ac¬ 
cording to the statisticians, the item of “clothing” consti¬ 
tutes about sixteen percent of the average family budget; 
which being the case, the non-investor families (or wage 
earners) pay out an aggregate of about four billion dollars. 
The expenditure of about one-half of this immense sum is 
made necessary on account of reductions in quality, a 
shrewd calculation made by the Capitalistic Entrepreneurs. 

It is not to be supposed for a minute that the Capitalistic 
Entrepreneurs reduced quality in order to keep a large 
number of workmen employed. By no means! They re¬ 
duced quality because it necessitates double the consump¬ 
tion—consequently means double profits to them. In other 
words, Capital, with regard to the industries where there 
has been a material reduction in quality, makes twice as 
much as formerly on the output per workman; for the price 


398 


The New Capitalism 


of the present inferior article is approximately the same as 
the price of the former superior article. 

Reduction in quality (to say nothing at this time about 
a noticeable reduction in the quantity for an ever increas¬ 
ing number of articles) means the expenditure of billions 
of dollars a year. We propose a material increase in the 
quality, not only of clothing but with regard to many arti¬ 
cles of family use. This will mean a tremendous saving in 
the family budget. 

My Modest Claim 

As regards the cost of living of the average family: I 
hold that, under the New Capitalism it will be possible to 
bring down prices of the aggregate living commodities to 
a point which will enable the average family to save from 
$100 to $450 a year. It may take from five to ten years 
before the maximum figure is reached, but even during the 
first five years the saving will be appreciable. 

It is not to be supposed for a moment that the New Order 
will concern itself only with manufacturing industries. It 
will include within its sphere of operation, economic adjust¬ 
ments in sundry directions. Anything that has helped to 
increase the cost of living unduly, or refuses to return to 
a more rational level of prices, will be grist for our mill. 
We are determined to increase the exchange value of the 
dollar, to restore its maximum purchasing power. We pro¬ 
pose to revitalize the emaciated, debilitated wage dollar, not 
by a weak saline injection, but by blood transfusion from 
the giant Capitalistic dollar—treatment that may be a 
trifle heroic, but absolutely necessary and effective. 

No Utopian World 

Let none imagine that the New Order is in any way 
intended as a Utopia; let none delude himself into think¬ 
ing that its complete success will usher in the millennium. 
Neither a Utopian world, nor a millennial heaven on earth 
will result from the adoption of my plan. But it will bring 
the country back to a common sense basis of business, and 


Cost of Living Under New Capitalism 399 

common sense views of life will begin to control the world. 
That is about as much as I expect to achieve through the 
medium of my plan. The New Capitalism is intended to 
usher in an era of Common Sense-ism—the only ism that 
has never been advocated—that no one has ever suggested. 

The New Capitalism is not a catholicon for the ills of 
the world. It is not an alchemy that converts dross into 
precious metal. It does not pretend that it will shake Hes- 
perides apples into the lap of Labor. It holds out no 
promise of great wealth to anyone. All it will aim to do 
is to place those who labor in a position that will assure 
them the highest possible recompense for work performed, 
while enabling them to live in decent comfort, and retain 
(and invest) a fair portion of their earnings, against the 
inevitable “rainy day.” 

There will never be a system of economics that will 
straighten out all tangles, or be equable for all. My plan 
is not calculated to take care of the foolish, the imprudent, 
the lazy, the shiftless, the thoughtless, the extravagant. 
These ye have always with you. I have no idea how a man 
can eat his cake and have it too. I know of no way in 
which common sense can be pounded into the heads of 
foolish people. I do not know of any way in which people 
can spend all they earn or make, and also have a compe¬ 
tence at the end of twenty or twenty-five years—a reserve 
fund for old age, infirmity, sickness and accidents. My 
plan, however, will give every man and woman his or her 
choice—each can choose to be sensible or foolish—provident 
or improvident—frugal or prodigal, thrifty or shiftless. 
My solace is that tens of millions of those who, with the 
best of will, can, under the present conditions, hardly make 
ends meet or barely keep the ends together, will henceforth 
be enabled to save a fair portion of their earnings, which 
profitably invested, will secure them and those dependent 
upon them, against poverty and wretchedness. 


CHAPTER XXIX 

“Out op the Frying Pan into the Fire” 


E VEN a cursory examination of economic history 
reveals that numerous attempts have been made at 
different times by the people of European nations to 
break and thrust off the shackles of their economic serfdom. 
Socialism is rampant in Germany. In Russia the new eco¬ 
nomic order is Bolshevism. In Prance, we hear, or at least 
did hear up to a few years ago, much of Syndicalism. In 
England the Guild movement seems to be gathering 
strength. In Italy, until recently, a mixture of Socialism, 
Syndicalism, and Bolshevism prevailed; now Fascism is in 
the saddle. 

While there is no universal agreement with regard to 
principles, nor uniformity as regards programs, most of the 
economic reform movements in Europe have certain ten¬ 
dencies in common. Thus, for example, we observe in 
every country where the revolutionary spirit is rampant, 
a growing desire on the part of the people to overthrow 
their rulers and the existing governments, some extreme 
doctrinaires going even so far as to advocate the destruc¬ 
tion of all government. The inspiration for this attitude 
is easy to understand when we keep in mind that in most 
European nations the people have practically nothing what¬ 
ever to say with regard to their own political affairs and 
destinies. They are subjects, rather than citizens; ruled, 
rather than governed. What makes their resentment all 
the bitterer is their knowledge that those who rule over 
them politically, also rule over them economically. 

The Fallacy of a Worker’s Republic 

And so, out of the babble of economic voices across the 
ocean, we can distinctly hear shrill mention of what it 
pleases some to call the rule of the proletariat, or a “work¬ 
ers' republic.’’ Prom the economic standpoint a “workers’ 


400 


“Out of the Frying Pan 


401 


* > 


republic” is at best a madman’s dream. In Russia they 
tried to establish one; with what success is generally known. 
In Italy, and in other countries, several attempts have been 
made within recent times on the part of groups of work¬ 
men, to take over, sans ceremonie, the leading industries. 
Every such attempt is bound to fail ultimately; or else, to 
succeed, must become a proletarian tyranny, no less repug¬ 
nant than the Capitalistic tyranny it was designed to 
destroy. 

In England, if I may base my conclusions on such long¬ 
distance studies of the Guild movement as I have been 
enabled to make from the writings of such men as Douglas, 
Penty, Cole—and others—Labor is preparing for the day 
when it proposes to assume active control of the industrial 
workshops. England’s Labor movement is seemingly bet¬ 
ter organized than in other countries; the workers have a 
definite plan and program; but granting all this I can dis¬ 
cern no hope of economic betterment, neither for the work¬ 
ers nor for England’s general public. 

I may be wrong as regards England! but applying the 
principles involved in the rule of the proletariat—or a 
“workers’ republic” to conditions in the United States, 
and with which I am fairly familiar—I unhesitatingly say 
a so-called “workers’ republic” is not only utterly repug¬ 
nant to me; but entirely unthinkable. 

No Revolutionary Program in the United States 

Briefly, any and every brand of revolutionary doctrine 
or radical economic reform movement that may be defens¬ 
ible and perfectly logical in Europe where political and 
economic conditions are entirely different, and, it would 
seem, decidedly worse than in our own country, is inap¬ 
plicable to the United States, and cannot succeed here. 
True, we find here and there isolated radical groups, whose 
leaders, entirely lacking in originality, have borrowed sun¬ 
dry tenets from the various European revolutionary doc¬ 
trines and incorporated them into a sort of program, which, 
however, makes no appeal to the imagination of the average 




402 


The New Capitalism 


sensible man and woman; a program so extreme, and vio¬ 
lent, that it does not, cannot, and never will, win the 
approval of any considerable number of the general public 
in the United States. Rather would we bear the ills we 
have, several times multiplied, than fly to others that in all 
likelihood would be more unendurable. 

A Fundamental Fallacy 

In “industrial socialism” I can discern only this one 
erroneous thought, that the earth and all it can be made to 
bring forth, belongs to the industrial workers, and that 
industrial workers have a prior claim to the usufruct of all 
Labor. This is precisely the fallacy upon which the Cap¬ 
italistic System has builded itself. The principles involved 
are so obviously untenable that I shall not delay the reader 
a moment in emphasizing their falsity. To my way of 
thinking there is not the slightest difference between an 
economic system whose bountiful emoluments, as is the case 
today, are selfishly pre-empted by a few million minority 
—the many more millions majority being made to suffer— 
and a system which proposes that the same emoluments 
shall hereafter be appropriated by a different minority, 
which would not lighten in the least, but make heavier, the 
burden of the greater majority. 

While I differentiate between industrial socialism and 
organized Labor, for the two are as wide apart in their 
ideals and their policies as the poles—nevertheless I have 
observed that group dominance and control of industries is 
not entirely repugnant to certain Labor groups. Needless 
to say, I do not sympathize with their aspirations, which I 
think are based on insufficient understanding of the fun¬ 
damental principles involved, rather than inspired by any 
evil design. 

Economic Amelioration Vagaries 

But while we have not in the United States any organ¬ 
ized economic movement, or any economic doctrine that has 
won for itself the endorsement and support of any con- 


“Out of the Frying Pan—” 403 

siderable number of people, we have a rather variegated 
collection of theories and so-called remedies, each of which 
has succeeded in winning a limited number of adherents. 
During the past few years I have read at least a dozen 
books and articles in which the writers suggest various ways 
by which Labor could get control of industries—as if that 
in itself were a panacea for all our economic ills. If there 
were any truth in that assumption the people of Russia 
would today be at the zenith of their economic prosperity, 
for there the proletariat has taken over the industries, with 
what results to themselves and the country is now pretty 
generally understood. But political and economic condi¬ 
tions in Russia are different from our own, and I do not 
consider it either fair or necessary to draw a parallel be¬ 
tween the happenings in Russia and what would likely 
happen in our own country, were like measures adopted. 

With regard to the proposals of the several writers who 
have ventured seriously to propose the possibility of Labor’s 
control of the industries, the suggestions they make seem 
plausible enough until analyzed; and then they fall to pieces. 
Labor is to take over the control—by purchase, I infer— 
of the industries just as they are—including overcapitali¬ 
zation, watered stock, bonds, notes, liabilities, cost systems, 
overhead expense, fixed charges and all; the difference 
would be that the profits and the accruing interest and 
dividends would go to the workingmen instead of as at 
present, to the Capitalists or the investors. This is sup¬ 
posed to be of some immediate benefit to the workers. It 
isn’t, as I shall show; but granting for the moment that it 
would be of advantage to the workers, it would certainly 
yield no benefits and certainly no advantages to those not 
numbered among the workers in the several industries 
taken over. It would solve none of our economic difficulties. 
Production costs would remain the same; prices of com¬ 
modities would be as high as ever; rents would not be low¬ 
ered; in brief it would not decrease the burden nor lessen 
the hardships now resting on the average non-investor 
family. 



404 


The New Capitalism 


Any economic scheme that has for its immediate objective 
an increase of benefits for a minority, a single group, at the 
expense of the majority is in no wise different from what 
we have today, and consequently does not win my approval. 
Any economic proposal that seeks to confine its benefits to 
a fraction of the workers, and excludes all others from par¬ 
ticipation therein, does not merit serious consideration. 
That is precisely the trouble now. The benefits all accrue 
to a group, the Capitalistic group, while the larger group— 
those who work for a wage and who are no part of the 
Capitalistic System, must bear the brunt of it. 

Let us for a moment imagine that the ten million workers 
engaged in the mechanical and manufacturing industries 
actually had gained control, (and by perfectly legitimate 
means, let us say,) of all the industries; and whatever 
benefits would accrue would belong exclusively to the ten 
million workers. Of what benefit would the transfer of 
control or ownership be to twenty or twenty-five million 
of men and women workers who are not engaged in any 
of the industries concerned? None whatever! 

An Economic Experiment 

From a newspaper editorial, a clipping, (December 11, 
1920) I learn that an ex-minister in Cincinnati is at pres¬ 
ent the president of a large clothing factory, in the conduct 
of which he applies the Golden Rule. Some of the results 
noted in the item before me are these: “Wages have been 
increased forty percent. Invested Capital is earning sixty 
percent. Profits above sixty percent are equally divided 
between owners and workers. Perfect content reigns in the 
factory. 7 ’ 

I made no effort whatever to look up this matter, or make 
any inquiries concerning it, since to give detailed informa¬ 
tion with regard to the various economic experiments is not 
included within the scope of my book. I do not know what 
the conditions in said clothing factory are today; but assum¬ 
ing they are unchanged, and basing my statement upon 
the meager data contained in the newspaper item from 



“Out of the Frying Pan 


405 




which I have quoted, I would conclude that the factory is 
conducted in some respects along the lines advocated by 
those writers who consider Labor’s control of the indus¬ 
tries as an economic remedy. 1 If the statement that “in¬ 
vested capital is earning sixty percent” is not an exaggera¬ 
tion, then the ex-minister’s clothing factory is certainly run 
on a basis calculated to be of the greatest advantage to the 
workers within that factory; in that case few, if any, 
benefits, redound to the general public. Basing my assump¬ 
tion entirely upon the information contained in the item 
referred to, I am inclined to think that the products of the 
ex-minister’s clothing factory are sold at approximately 
the same high prices asked for the products of other plants. 
If I am correct in assuming this, then the opportunity for 
noting an essential difference between the ex-minister’s plan 
and my own plan has arisen. Decent wages for workers are 
the prime consideration of my plan; nor do I overlook the 
necessity for reasonable profits. But more important than 
either or both of these features are lower prices to the 
public for the commodities produced, for this alone makes 
wages and profits valuable. It is not my plan to make the 
New Order advantageous only to certain groups of indus¬ 
trial workers, but to make it of the greatest possible benefit 
to all workers—that is—the general public. 

The Deadly Distinction 

I want to emphasize this distinctive feature of my plan. 
If its successful establishment meant merely the improved 
condition of small groups of workers—or the laboring group 
in the aggregate; if it meant simply the transference of 
an unjust and tyrannical power now in the hands of the 
organized Capitalistic Entrepreneurs to the hands of organ- 


i Since writing- th« above I have discovered that the ex-minister 
is the Rev. Mr. Nash. Besides critical articles have been published 
about his plan and plant in the New Republic and The Nationj with 
all of which, however, I am not concerned. I shall confine myself 
strictly to a discussion of the principles involved. Nothing- that T 
have read wfith regard to the Rev. Mr. Nash’s clothing factory alters 
the principles involved in his experiment. 




406 


The New Capitalism 


ized Labor, then, economically speaking, the public in gen¬ 
eral would be no better off than it is today. High prices 
and the high cost of living would still be evils, all the more 
distressing because maintained by the very people who 
complained loudest against them. 

As stated before—I may be in error in having arrived at 
certain conclusions with regard to the ex-minister’s clothing 
factory; but even so—it gives me an opportunity to accen¬ 
tuate a point which I shall be at great pains to make per¬ 
fectly clear in the course of this book. We mean, indeed, 
to destroy the unjust and tyrannical power of the Capi¬ 
talistic Entrepreneur System. The tremendous power the 
Capitalistic Entrepreneurs now exercise w r ill be wielded by 
us, but never unjustly or tyrannically. In our hands that 
power must be beneficent, and exercised in a strictly just 
manner so as to yield the greatest good to the greatest num¬ 
ber. 

Another point that I desire to accentuate on every pos¬ 
sible occasion in the course of this book, is that big 
profits do not constitute the ultima thule of my plan. On 
the contrary we shall strive to bring about a condition that 
will considerably reduce the excessive profits now garnered 
by the Capitalistic Entrepreneur group; for it is quite 
provable that big profits are the corollary of high prices of 
the living commodities. As long as prices are high and 
profits big, so long will the purchasing power of the dollar 
be proportionately below par; so long will wages have a 
minimum exchange value. 

To pay liberal wages for labor performed will be a definite 
striving of my plan—but high w T ages are of no avail unless 
accompanied by a higher purchasing power—a greater ex¬ 
change value. A maximum wage with a minimum exchange 
value is demonstrably an economic maladjustment of no 
special advantage to the worker, nor of benefit to the public 
in general; but a maximum wage with a maximum exchange 
value—that is an ideal with a practical purpose—an ideal 
that we shall strive to realize. 


k ‘Out of the Frying Pan—” 


407 


Again the Question of Exchange 

If it were possible for each trade, craft, or guild, to abso¬ 
lutely control its own industry, and raise the prices of its 
products ad libitum —and so add to its wages also, enormous 
profits,—Labor would still not have improved its relative 
condition one particle, for the profits made by the workers 
in one craft would be taken away by the workers in all the 
other crafts. Let us take, for example, the clothing indus¬ 
try. Under Labor’s control of the craft, the profits made by 
the clothing workers would be taken away again by the 
shoemakers, the hat makers, the shirt makers, the dress¬ 
makers, the milliners, the furniture makers, etc., etc. Not 
only that, they would be compelled to pay excessively high 
prices for many things that are not produced in shops and 
factories and mills; for example, rent, and the many prod¬ 
ucts of the farm necessary to their existence. Absolutely 
no advantage would result to the wage workers from inde¬ 
pendent group control of the industries; their economic 
condition would in nowise be improved; indeed, they would 
be worse off than they are today. 

Playing With a Loaded Gun 

Labor must keep these two essential things in mind: 

1: That wages come out of the product of Labor itself. 
In other words, in the course of production one workman 
exchanges his labor for the labor of other workmen. 
When the hatmaker buys a pair of shoes he helps to pay 
the wages of the shoemaker; and the shoemaker helps to pay 
the wages of the hatmaker when he buys a hat. There is 
no escape from this rule. No system of economics can ever 
be devised that would alter this exchange of labor feature, 
and its corollary that the wages of one group of laborers 
are ultimately paid by all the other laboring groups. 

2 : That all profits come directly out of Labor’s wages— 
or let me rather say out of the exchange of wages by those 
who labor for the commodities necessary to life. Conse¬ 
quently Labor in the mass would not improve its condition 


408 


The New Capitalism 


one iota. Living costs would not only remain at an abnor¬ 
mally high level, but undoubtedly would rise still higher; 
and while the workers themselves might, by a division of 
the profits among themselves, increase the quantity of their 
wages or income, they would be no better off at the end of 
the year, for their greater quantity income would have no 
greater exchange value; and their savings no greater pur¬ 
chasing power. 

For the present I want to impress upon the readers, par¬ 
ticularly on those who are wage earners, that the New Order 
is not to be an organization of and for the exclusive benefit 
of workingmen, but of and for the benefit of all those who 
constitute the group of non-investors. Nor is the New Capi¬ 
talism intended to give temporary advantages to a few of 
them; but rather permanent benefits to all of thorn—with¬ 
out exception. 

The Inherent Weakness of Organized Labor 

The inherent weakness of all Labor organizations lies in 
the fact that the workers constituting them have organized 
themselves merely as wage earners. Six or seven million 
men and women have organized to protect themselves as 
wage earners, but they are unorganized as consumers—as 
non-investors. Indeed it could be demonstrated that the 
protection that Labor has gained for itself when serving in 
the capacity of wage earners, has been detrimental to the 
laborer and his family in the role of consumer and non¬ 
investor. Every advantage that Labor has gained through 
its organization is taken away in its unorganized capacity 
as consumer and non-investor. In other words, Labor has 
protected itself for eight hours a day; but has left itself 
open to a thousand attacks during the remaining sixteen 
hours a day. Labor has protected itself for 2400 hours a 
year, but is absolutely unprotected during 6360 hours each 
year. Moreover, Labor, in protecting itself during eight 
hours, has been the innocent cause of imposing greater 
hardships upon a large percentage of the non-investor 
group of consumers—that group which is not organized or 


“Out of the Frying Pan 


409 


5 1 


could not derive any immediate benefit whatever from or¬ 
ganization. Into this group I will put all the salaried men 
and women, as well as those who, receiving no regular wages 
or salary, derive a revenue from their labor, or service, the 
equivalent of a wage or salary. 

But that is not the phase of the subject that I desire to 
discuss. I merely want to emphasize that Labor has organ¬ 
ized itself for collective protection for eight hours only, 
and left itself entirely unprotected during sixteen hours a 
day. Labor has, or thinks it has, protected itself against 
Capital, but I say that Labor has not protected itself against 
the Capitalistic System. What Labor has seemingly won 
from a few hundred thousand employers is taken away 
from it by several million profiteers. Protection during 
eight hours; exploitation during sixteen hours a day. Labor 
collectively is protected eight hours a day; the individual 
laborer still remains unprotected the greater part of the 
day. Let us take an average family of five, of which one 
is the wage earner. This ‘means one member is protected 
for eight hours a day while actively engaged in the role of 
wage earner; he is not protected, and his organization can 
give him no protection, during the other sixteen hours. 
And the other four members of his family remain unpro¬ 
tected twenty-four hours a day. 

I have tried to put my thought in a manner easily under¬ 
stood by the average man and woman. I call upon my 
readers to ponder over my presentation a few moments, 
which, if they will do, they will clearly see the point. As 
long as a wage earner can give himself no greater protection 
than at present; as long as he does not protect every member 
of his family every hour of the day, so long will he have de¬ 
rived no actual benefit, and certainly won no material ad¬ 
vantage from his organization. 

I have entitled this chapter ‘ ‘ Out of the Prying Pan into 
the Fire,” because it aptly describes the situation, for if 
the several groups of wage earners were in actual control of 
the industries, and they would raise both their wages and 
the prices of their products so that their aggregate income 



410 


The New Capitalism 


from these two sources would be one-fourth or one-third 
higher than it is today, they would still not have improved 
their own condition, for the reason that the exchange value 
of their wages would be lower than ever; and even though 
their savings would be larger than before (though I am dis¬ 
posed to doubt that) the 'purchasing power of their savings 
would be considerably less than it is today. And the eco¬ 
nomic status of the millions of men and women workers, 
those not engaged in the manufacturing industries, would 
be a great deal worse. 

Briefly, any economic reorganization plan that does not 
include within its program a definite design to raise the 
exchange value of wages and to increase the purchasing 
power of money (or savings) will bring no relief to the 
workers in the capacity of wage earners, nor to the workers 
in the role of consumers and non-investors—that is, to the 
general public. 

The Open Road to Disaster 

It is to be noted, too, that all the writers who had visions 
of Labor’s control of the industries as a remedy for our 
economic ills have overlooked the most important point— 
namely, the necessity for capital and credit. They have 
given no hint as to how the capital necessary to gain con¬ 
trol of the industries, or the capital and credit necessary to 
run them, is to be raised. And, most of all, they entirely 
overlooked the very important point, viz., that, even grant¬ 
ing the possibility of group control of the several industries, 
they would still be at the mercy of the Capitalistic group 
that controls the system of banks upon which they would 
have to depend for credit necessities, and to whom they 
would have to yield up their securities as collateral—in 
brief, in whose favor they would be compelled to hypothe¬ 
cate their plants and business. Foreclosures, refusal to 
renew notes, or extend credit facilities, receiverships and 
bankruptcies would be the order of the day. Indeed, it is 
on record that during the past few years several Labor 
groups have struck out for themselves, and that most of 


“Out of the Frying Pan 


411 




them have gone to pieces on the rocks of insufficient finances, 
and credit withdrawals, refusals and curtailments. It is 
well to remember that it was by virtue of their dominant 
control of the financial resources of the nation that the 
Capitalistic group attained its supremacy, even to the 
extent of crushing or controlling powerful rivals—and so- 
called independents. Any economic plan that disregards 
the existence of this cruel power is foredoomed to failure. 
It must be reckoned with, or else circumvented or check¬ 
mated. 

The greatest possible stupidity that organized Labor could 
perpetrate would be to break itself up into small, inde¬ 
pendent units—each group bent upon getting a maximum 
of revenue—‘ ‘ all that the traffic can bear ’ ’—out of its par¬ 
ticular industry. Were I a Capitalistic Entrepreneur I 
should not only welcome, but do all in my power to encour¬ 
age even to the extent of financing, so foolhardy a procedure 
on the part of Labor, for it would be the easiest thing in 
the world to crush group after group—and, once crushed, 
they would be out of harm’s w T ay forevermore. The only 
possible chance that Labor has to lift itself out of eco¬ 
nomic thraldom is to constitute itself into an organized 
group; not to break itself up into disintegrated and unre¬ 
lated units. 


The Lesson of the Past 

Fifty years ago business was conducted on an entirely 
different basis than it is today. Then business ability, integ¬ 
rity, and efficiency of the proprietors of a business counted 
for something. Business was truly competitive; there was 
real rivalry, often keen, sometimes bitter. The man who 
went into business provided his own funds, managed his 
own finances, and established his own credit. As his busi¬ 
ness grew he took in a partner or two. Stock companies 
were almost unknown. Out of their profits they extended 
their business; out of their profits, be it understood. Or, 
if they borrowed, they paid back what they borrowed out 




412 


The New Capitalism 


of their profits. Their plant was considered by them as 
their machinery for making a fair profit—gradually increas¬ 
ing their wealth by increasing the size of their plants and 
the volume of their production. The foundation of every 
big industry was laid in the last half of the nineteenth 
century, under the then prevailing system. Most of the 
pioneers were successful business men—men who took a 
natural pride in making a success of their business. Finan¬ 
cially they were prosperous; they did not become mil¬ 
lionaires over night; it took years to lay the foundation of 
a fortune; and years to build the superstructure. 

Then came the period of Trusts. At first pools and 
syndicates were formed. Combinations of Capital were 
followed by the combination of the important manufac¬ 
turing plants. The founders of the plants, or their descend¬ 
ants, were persuaded by seductive offers to enter the com¬ 
bine. Most of them did, accepting as their reward stock of 
a par value several times in excess of the actual value of 
their properties and assets. Many of the existing plants 
that had been in competition with each other were deemed 
unnecessary under a system of combination that was cal¬ 
culated to entirely eliminate competition, and were closed 
up or dismantled. 

For several decades there had been many more or less 
successful attempts made at combination, but not until the 
organization of the United States Steel Corporation, which 
combined the biggest plants in the most important indus¬ 
try in the United States into one gigantic corporation, was 
launched, were the inherent possibilities of organized com¬ 
bines revealed. How the organization was effected, and 
that it was successful, is now pretty generally known. It 
is not any part of my design to go into details either with 
regard to the United States Steel or any other corpora¬ 
tion. I want merely to remark that the United States 
Steel Corporation set the example. The “reorganization” 
of most other industries quickly followed, so that not only 
the big industries but the less important businesses were 


1 ‘ Out of the Frying Pan 


413 




organized along the same lines as the powerful combines. 
Competitive methods were no longer a part of trade and 
commerce; the semblance alone was kept up. 

Today price fixing is the rule; cost-finding systems are 
perhaps not uniform, but certainly universal. Items are 
now charged up against “cost of production,” and taken 
out of “earnings,” which were formerly taken out of 
profits. The purchasers of the commodities produced are 
taxed with sundry items of “cost,” such as insurance, all 
taxes, depreciation, replacement, interest on investment, 
interest on bonds, etc. For the present, suffice it to say 
that all the principles and practices of the big fellows have 
been successfully and universally copied by the little fel¬ 
lows. Not a lesson has been overlooked. 

The Value of Organization 

The most important lesson, however, and which has not 
been overlooked by any one group of individuals, is the 
lesson of the importance of organization, unity and soli¬ 
darity. From top to bottom, business is organized—com¬ 
pletely, thoroughly organized. The bankers, the financiers, 
the brokers, the producers, the manufacturers, the employ¬ 
ers, the wholesalers, the jobbers, the retailers, and even 
the various branches and departments of business of what¬ 
ever kind—all thoroughly and completely organized—all 
constituting a single system—a harmonious whole; the con¬ 
stituents singing the same songs, saying the same prayers, 
worshiping the same golden calf—all tied together by the 
common bond of self-interest expressed in dollars and 
cents—in bigger profits and greater riches. 

There you have, in brief, a bird ’s-eye view of the Capital¬ 
istic System. Even those who cannot be said to be either 
Capitalists or Entrepreneurs, but have been or are benefi¬ 
ciaries of the System or its practices, think in unison, or, 
more properly speaking, they have their thinking done 
for them by the so-called Captains of Industry and Finance, 
and are content to be merely echoes. There is complete 




414 


The New Capitalism 


unanimity, for their interests are identical. They are a 
chorus of acquiescence, or agreement. Not a single dis¬ 
cordant voice is lifted at any of their banquets; not a dis¬ 
senting vote is heard in any of their meetings. There are 
no radicals among them, no independents, no dissenters, 
none to kick over the traces. 

Every contingent has, moreover, its own press—a power¬ 
ful, well-financed and well-supported press. There are 
hundreds of trade journals, or journals having to do with 
the sundry interests of the different groups. 

The One Conclusion 

This is the System against which I propose that the non¬ 
investors organize themselves, and of which organization 
Labor is to be the nucleus. The lesson of unity, organiza¬ 
tion and solidarity is the one lesson to be mastered. The 
folly of disintegrated and unrelated units acting independ¬ 
ently of each other must be apparent to even the merest 
novice. A solid and united front will be necessary to op¬ 
pose the forces whose strength lies not so much in numbers 
as in their complete homogeneity and their perfect morale. 


CHAPTER XXX 

Economic Changes and Adjustments 

T HERE is one phase of the economic side of the 
nation’s life that we cannot much longer hide from 
ourselves. We are fast approaching a condition under 
which industrial stagnation in business will become more 
frequent, and periodical labor lay-offs become the rule. 
Herbert Hoover, Secretary of Commerce, in 1921 pointed 
out that the present is the fourteenth industrial depression 
we have had since the Civil War. If I have read the signs 
aright, the wage earners may just as well make up their 
minds that from this time on there will be an industrial 
disturbance every five or six years. It is inevitable un¬ 
der the Capitalistic Entrepreneur System, which cannot 
flourish under stable conditions. Fluctuations—rises and 
falls, ups and downs—are the essence of the System. As 
an example, if prices of stocks remained stable for two con¬ 
secutive years the stock exchanges would collapse like so 
many houses of cards. The immense profits in the stock 
game are made out of fluctuations in market prices. 

That these fluctuations are manipulated is no secret. If 
immense profits in the securities market are derived from 
artificial fluctuations, the same principle can be applied 
with similar results to industrial conditions. Therefore, 
disturbances and crises are desirable things from the Cap¬ 
italistic standpoint, particularly as regards Labor, for, if 
those who work for a wage had five or ten years of con¬ 
tinuous prosperity, they would acquire so great a degree 
of economic power, importance and momentum that they 
could not be controlled, which would be fatal to the Cap¬ 
italistic Entrepreneur System. The best way to keep wage 
earners in the proper frame of mind, and docile and sub- 


415 


416 


The New Capitalism 


missive, is to keep the prospect of periodical industrial de¬ 
pression—loss of jobs, of wages, or savings—hovering con¬ 
tinually over their heads. 

The Course of Events 

It is quite possible that many who read this do not see, 
and are unable to discover, any planned design in the peri¬ 
odical industrial depressions that have afflicted the nation 
in the past, and so will not admit design in those that will 
afflict the nation—particularly the non-investors—in the 
future. Very well! I shall not press the point at this 
time. Indeed I am quite willing, for the present, to confine 
myself to a consideration of sundry events which seem to 
play right into the hands of the Capitalistic Entrepreneurs 
—events in the shaping of which it cannot be said they are 
playing the conspicuous role of villain, but events the evil 
effect of whose reaction is visited on the heads of the wage 
earners—the non-investors, the public. 

For example: The industrial development of the country 
within the past twenty-five years has been phenomenal. It 
was not so much a gradual growth as a tremendous, sud¬ 
den forward leap. In many lines of production the in¬ 
crease was doubled and trebled. I do not want to lumber 
this chapter with an array of statistics. For this reason I 
refer the readers to the latest Statistical Record of the 
Progress of the United States as recorded in the Statistical 
Abstract for 1922, where he will find enough data to either 
confirm or disprove my statement. The statistics, if ana¬ 
lyzed and correlated, show that the growth prior to 1900 was 
steady and gradual; the rate of increase was normal. But 
after that we note a more rapid expansion. While the 
population increased from 75 million in 1900 to about 105 
million in 1920—an increase of 40 percent—the increase 
in our progress in the past twenty years was at the rate of 
100 to 300 and even more percent. An admirable record, 
surely one to be proud of and rejoice over! But it cannot 
be kept up. Perhaps the simplest way to show the quick, 
not to say sudden, progress is to point to the increase in 



Economic Changes and Adjustments 417 

bank clearings from $84,582,450,081 in 1900 to $462,920,- 
250,000 in 1920. 

The Limit of Healthy Growth 

The point I want to make is that we cannot maintain 
the same percentage of increase; the tremendous industrial, 
commercial and even agricultural expansion during the 
past twenty years cannot be repeated during the next 
twenty years. The century from 1800 to 1900 can be said 
to have been the years of adolescence, of our “productive 
progress/’ A study of the statistics for the years from 
1900 to 1920 reveals an enormous step forward, an abnormal, 
not to say unnatural, increase in our productive progress, 
due to artificial stimulation through the medium of infla¬ 
tion and an unusual combination of circumstances and 
events. As an example, take the automobile industry. 
Twenty years ago it was in its infancy. Twenty years ago 
a mere corporal’s guard of our citizens had automobiles. 
Today there are nine million pleasure cars in use. But it 
would be folly to compute that, therefore, twenty years 
hence eighteen million pleasure cars will be in use; and 
forty years hence, thirty-six million. 

Healthy boys and girls keep on growing until about the 
age of twenty. Then suddenly their growth stops, and all 
the remaining years of their lives will not add an inch to 
their height. She, you will admit, would be a foolish mother 
who, knowing that her son at the age of twenty wore trous¬ 
ers forty inches in length, would therefore conclude that 
by the time he reaches forty he will wear trousers eighty 
inches in length. Put into bold relief, we are no longer in 
our ’teens; our nation’s ‘ ‘ productive progress ’ ’ has passed 
beyond the “growing” years; we have transcended the 
normal limits of growth; we have reached a point beyond 
which, in the nature of things, we cannot increase in vol¬ 
ume or percentage per capita —a fact which our purblind 
Captains of Finance —alias Captains of Industry—refuse 
to admit. As a result of their insistence that we shall con¬ 
tinue to grow—that at the age of forty we shall wear 


418 


The New Capitalism 


trousers twice as long as we wore when we were twenty— 
they have put the nation on stilts, and they are goading us 
on to a fall. 

Speed Without Motion 

There wull not be, there cannot be, the same percentage 
of increase, neither in production nor in manufacture, 
nor in sales. Production is regulated by consumption. 
With regard to many things, particularly articles of food 
and of manufacture, production is already in excess of 
normal consumption. Why blink the fact? Why lie about 
it? During January of 1920 Elbert H. Gary declared 
that during the next five years we wmild increase our 
crops 100 percent. Assuming that we do—who is going 
to benefit by this excessive increase in production? What 
are we going to do with the additional 100 percent of 
cereals, etc. ? The people will not consume twice as much; 
that is certain. Just the reverse is likely; for the people 
are consuming less and less on account of high prices. Nor 
can we depend on larger exports, for it is reasonable to 
suppose that the United States will not be alone in its in¬ 
creased production; other parts of the world will increase 
as well. And certainly the population of the United States 
and the population of Europe will not double during the 
next five years. Who, then, will be benefited by a 100- 
percent increase in crop production, with no proportionate 
increase in consumption and in the markets? 

As late as June, 1921, at a time when the steel mills were 
running at about 20 percent of capacity, Charles M. Schwab 
publicly declared that we were not producing enough. “We 
must increase our production, ’ ’ he said. Increase produc¬ 
tion of what? If Mr. Schwab really believed what he was 
saying, why didn’t he start his own plants going full tilt? 
Why didn’t he put the men back to work in his own mills ? 

Crying “Wolf, Wolf’’ When There is no Wolf 

During and following the war we were told that there 
was underproduction; the cry was raised by Chambers of 
Commerce and the sundry sycophantic hirelings of the 


Economic Changes and Adjustments 419 

Capitalistic System that what was needed was more pro¬ 
duction. Then came the buyers’ strike, and the retailers’ 
strike, and the wholesalers’ strike. The manufacturer was 
caught with vast quantities of raw materials and finished 
products in warehouses and on his shelves. The retailers 
had previously, under persuasion of manufacturers or 
wholesalers, stocked up rather better than ordinarily. The 
general public, too, had been induced by the retailer to buy 
double quantities. “ Better buy two or three pairs of 
shoes,” said a shoe clerk in Chicago’s leading department 
store to me in January, 1919. 

“Why?” I queried. 

“Because prices are going to go still higher.” 

“If prices will go still higher,” I answered, “it will be 
simply for the reason that you will have succeeded in 
inveigling a sufficient number of fools into buying two or 
three pair of shoes at present outrageously high prices in 
stead of only one pair. If I, and every other person in need 
of a pair of shoes, can be coaxed, or cajoled into buying 
two or three pair of shoes, it means that your firm will sell 
two or three times as many shoes as formerly; and the 
wholesaler will sell two or three times more shoes; and the 
manufacturer likewise. Then the cry will be raised that the 
demand is abnormal, and this will only help to keep up 
prices. Moreover, your firm will give out interviews to the 
press that the people are buying recklessly and extrava¬ 
gantly—two or three pair instead of one, and—” 

But the young fellow didn’t understand. I was wasting 
my time. 

At any rate, when the buyers’ strike struck the country 
it became apparent that there was not, and had not been 
at any time—even when the cry ‘ ‘ we must produce more ’ ’ 
was loudest—what could be called underproduction. Pro¬ 
duction had always been equal to, and even in excess of, 
the normal demand. The semblance of underproduction 
was created by the irrational endeavors on the part of the 
manufacturers, wholesalers and retailers to stimulate and 
maintain a condition of abnormal consumption. 



420 


The New Capitalism 


Precisely what is the game? What is behind this studied 
attempt on the part of certain interests to give the impres¬ 
sion that there is underproduction when just the reverse 
is true ? Are they themselves deluded ? I do not believe it. 
Why the continued deception? Is there a Senegambian in 
the wood-pile ? Then let us find him. 

To Stimulate Capital Accumulations 

The conditions which made the tremendous sudden in¬ 
crease possible during the past twenty years are not in 
operation today. The reaction has set in. This reaction 
will affect the various parties involved—the Capitalistic 
Entrepreneurs, the wage earners, and all the non-investors, 
differently. It is more than likely that the Capitalistic 
Entrepreneurs will put forth every possible endeavor to 
maintain the same percentage of increase in their wealth 
accumulations during the next twenty years as during 
the past twenty years. How great this percentage is may 
be fairly computed from the statistics for “national 
wealth,” which was 88 billion in 1900 and 288 billion in 
1920—an average increase of ten billion a year. 

What methods will be employed by them to still further 
increase their “national wealth” is easily guessed. Wealth 
inflation will continue at the same or a greater rate; 
interest charges will probably be increased; high com¬ 
modity prices, and rents, also, will continue ; transporta¬ 
tion and freight rates will remain high; higher tariffs will 
be added to “cost of production”; “overhead expense,” 
“maintenance costs,” “administration expense,” and 
“fixed charges” will be pushed beyond the present high 
figures; and the quality of many commodities will be re¬ 
duced, thus putting people to the necessity of purchasing 
twice as much as formerly. 

The effects of all this will be visited upon the heads of 
the wage earners and salaried men and women, in brief 
will be felt in every home by all non-investors, in the role 
of consumers during sixteen hours a day. As wage earners 
or workers they will get rather the worst of it, in that they 


Economic Changes and Adjustments 421 

will be made to feel the effects also while at work in mine 
or mill, shop or factory, store or office. Their wages will 
be cut to the bone; their hours of labor will be increased; 
their output per day, or week, increased. And, of course, 
for many there will be periodical lay-offs—longer seasons 
of idleness, during which they will be compelled to con¬ 
sume their scant savings, or run into debt. 

The Capitalistic-Mammonistic Juggernaut 

This is no sickly dream. This is no purple prophesy. 
It is not even a fanciful guess; it is a statement of prosaic 
fact. The things I enumerate are not going to happen at 
some time in the future,—they are happening today; this 
very hour. They have been shaping themselves for over 
twenty years and are now developed to a point of alarm¬ 
ing perfection. A little polishing here, a finishing touch 
there, a tightening of screws all around, and the Capital- 
istic-Mammonistic Entrepreneur machine which has been 
building for more than twenty years will be in smooth 
running order—a Juggernaut that crushes and kills every¬ 
thing in its path as on it sweeps. 

The wage earners will be, as they have always been in 
the past, the worst sufferers from the onward rush of this 
monster machine. They still have the power to stop this 
mighty engine of destruction if they can but muster up the 
courage and develop the will, to do it. In another decade 
it may too late. But they must be made to understand, 
what they do not seem thus far to have been able to grasp, 
that there are other elements than the item of wages in¬ 
volved in their economic welfare. There is, for example, 
the constantly growing menace of unemployment for an 
increasing number. 

More Workers Than Jobs—A Capitalistic 

“Ideal” 

In plain English, there are, and under the supremacy 
of the Capitalistic Entrepreneurs there will continue to 
be, more workers than jobs. I should hesitate to put all 



422 


The New Capitalism 


the blame for this state of affairs on the Capitalistic Entre¬ 
preneur System, but there is considerable evidence that 
unemployment of a certain percentage of workers has 
from the very beginning been conspicuous among the 
Capitalistic “ideals.” When the great consolidation of 
steel industries took place, dozens of plants were closed— 
and dismantled, and thousands of men were thrown out 
of employment. This was euphemistically called “a sav¬ 
ing of waste”—“the doing away with duplication of 
effort,” etc. The reduction in the number of men on 
the payrolls meant a saving, not of waste, but of wages— 
consequently an increase of profit. 1 The working day of 
many of the steel workers not thrown out of employment 
on account of the closing of plants, was lengthened to ten 
and twelve hours, not a few being compelled to work 
seven days a week. This system, with some modifications 
made on account of public sentiment, is still in effect in 
most of the plants of the United States Steel Corporation, 
Mr. Gary persistently refusing, under various pretexts, to 
inaugurate an eight hour day for all workers. 

An eight hour day would mean the employment of many 
thousands of additional men. Apart from the fact that 
an increase in workers means an increase in the size of the 
payroll, which would produce if not a marked, still a 
noticeable effect on the earnings, there is the more im¬ 
portant consideration that it would practically exhaust 
the now available supply of steel workers. Not that 
that in itself is a serious dilemma, for the United States 
Steel Corporation has repeatedly proved that it is equal 
to any emergency, as, for example, when, in 1901, in its 
fight on the unions, it replaced American workingmen 
out of the foreign labor market. 

No, that isn’t it! The United States Steel Corporation 
has a reputation to sustain—the reputation of having for- 

i When Elbert H. Gary was before the Lockwood Committee (June 
2, 1922), Samuel Untermyer reminded him that in 1921 the United 
States Steel Corporation had only 45 percent of its capacity employed, 
and yet made more money than when the full capacity was employed. 
This confirms my own theory that the profits of the Capitalistic 
Entrepreneurs will be greater when fewer are employed. 



Economic Changes and Adjustments 423 

mulated and systematically promulgated a set of ideals 
now universally adopted by the entire Capitalistic System. 
The particular ideal with which we are concerned in this 
chapter, is the ideal of so maneuvering as to create and 
maintain a condition that provides for “a docile and 
flexible labor supply”—in other words, a certain percent¬ 
age of workers constantly available to replace other 
workers. 

Labor in Competition tvith Labor 

This “ideal” has been splendidly maintained thus far. 
I shall make no stress of the fact that in 1915 there were 
fully as many people out of work as in 1922. Of greater 
significance is the report of the Hoover Committee on the 
Elimination of Waste, which estimates that in the best 
years, like 1917 and 1918, there “was a regular margin of 
unemployment amounting to more than a million men.” 
This is the ideal the Capitalistic System has set for itself 
in normal times—a condition where there will always be 
a margin of a million or so wage earners out of work, 
seeking employment, willing to take any job at the em¬ 
ployer’s price. 

The consolidation of the big industries was brought 
about and justified on the principle that it is ruinous to 
have Capital in competition with Capital; but the consoli¬ 
dators deem it highly desirable to have Labor in competi¬ 
tion with Labor. Evidently what is sauce for the goose 
is not always sauce for the gander. When Labor is in 
competition with Labor, Capitalistic Entrepreneurs can 
urge the ancient claim that Labor is a “commodity,” and 
that wages are regulated by the “law of supply and de¬ 
mand.” 

Professor Ely, in his interesting work, “Studies in the 
Evolution of Industrial Society,” says that Professor John 
B. Clark “has worked out a theory of wages which, in his 
opinion, enables us to ascertain the true product of Labor, 
which should be then assigned to Labor. What Labor re¬ 
ceives under perfectly free competition, ‘with Labor ideally 


424 


The New Capitalism 


mobile, ’ is he says, the true product of Labor. ‘ The really 
natural standard of pay lies between the amount that idle 
men may here and there consent to take and the amount that 
a union, which guards its monopoly by force, may be able 
to extort; and it lies at about the level of what a union 
that is extended and efficient, but not monopolistic, can 
get. The standard that is so indicated would be one which 
well-constituted courts could recognize, etc.’ ” 2 

All this but emphasizes the Capitalistic Entrepreneur 
ideal with regard to Labor—an ideal which the System 
has fully attained; and the determination to maintain 
which explains much of the bitterness of the fight of the 
Capitalistic System against organized Labor. 

“A certain degree of unemployment,” said the New 
York Times in 1921, ‘‘is corrective of many social dis¬ 
orders.” This is not unlike David Harum’s philosophy, 
that “a certain amount of fleas is good for a dog; it keeps 
him from worrying about being a dog.” 

God help the nation that can devise no better corrective 
for its social disorders than wholesale unemployment and 
resultant misery and wretchedness, for a considerable 
number of its families. 

“I Die of Thirst by the Side of the Brook” 

The early English economists rather favored a high 
birthrate, on account of the resultant cheapness of labor, 
which would inevitably redound to the benefit of the 
Capitalists. Quite naturally their views w r ere shared by 
the leading statesmen—the ruling Capitalistic class of the 
time. In 1798 T. R. Malthus published his “Essay on the 
Principle of Population as It Affects the Future Improve¬ 
ment of Society.” Malthus argued that “Population has 
the constant tendency to increase beyond the means of 
subsistence”—that the constant tendency of all living 

2 The words which I italicize, viz., the amount that “a union 
which guards its monopoly (?) by forced) may be able to extortd)” 
are objectionable, and open to criticism, in which, however, I shall not 
indulge at this time; that would be beside the question imme¬ 
diately involved in this chapter. 



Economic Changes and Adjustments 425 

beings is to increase faster than the food supply. Malthus 
contended that population tends to increase in a geometri¬ 
cal progression, thus: 

1, 2, 4, 8, 16, 32, 64, 128 
while the means of subsistence can increase only in an 
arithmetical progression, thus: 

1, 2, 3, 4, 5, 6, 7, 8. 

Almost the whole so-called thinking world accepted the 
Malthusian theory without cavil or question. Today it is 
still reverently expounded in the universities, and emi¬ 
nent economists continue to preach it not only in England 
but also in the United States, with this difference, that 
whereas Malthus confined his theory to a consideration of 
the relation of the population to the means of subsistence 
—the food supply—the modern economists have given it 
a more inclusive application, namely, that population has 
the tendency to increase beyond the means of subsistence 
including all production; this in spite of the fact, too, 
that it can be shown by a wealth of statistics that Malthus’ 
fears, at least as far as the United States is concerned, 
were entirely unfounded. The means of subsistence—the 
food supply—is greater per capita than ever; we are 
producing rather more than we can consume. We are 
unable to find markets for what we produce. Millions of 
people throughout the world—slowly starving—would 
be glad to get our surplus, but, alas, they haven’t the 
means, the money; they are already on a starvation basis 
of wages. In their countries the Capitalistic System has 
been completely successful. 

In brief, in the United States, production of commodities 
in general has outstripped consumption; and not the re¬ 
verse, as so many Capitalistic Entrepreneurs and econo¬ 
mists would have us believe. Why does Mr. Gary seek to 
give the impression that a hundred percent increase in 
cereals is needed during the next five years? Why does 
Mr. Schwab (and scores of others) insist that we are not 
producing enough when just the reverse is true ? Ask the 
stars ! Mayhap they can answer! 


426 


The New Capitalism 


An Economic Dilemma 

The neo-Maltkusians face the difficulty more bravely. 
They do not try to disguise the fact that we are producing 
more than we can consume. Indeed they attribute the 
Capitalistic tendency (which they defend) to pay nothing 
more than a bare living wage, to the over-presence of 
workers—a greater supply of workers than is needed. And 
the solution they have to offer is the deliberate limitation 
of the birth rate—that, or dire poverty for the whole tribe 
of wage earners. 

And yet the deliberate limitation of births, it seems to 
me, carries with it its own condemnation. Let it be under¬ 
stood that whatever my private views may be with regard 
to the deliberate restriction of births, in this book I shall 
not allow any ethical consideration to enter in. I am view¬ 
ing the economic aspect of the subject, purely from a 
business standpoint, putting it on its lowest possible plane, 
or rather keeping it on the low level where I found it. 

Keeping all these things in mind I maintain that the 
production of population (consumers) is, if not a nation’s 
chiefest asset, at least its most important industry. When 
that industry, for whatever reason, languishes, economic 
disturbances are bound to result. The normal progress 
of a nation depends on the maintenance of a normal birth¬ 
rate. Curtailment of the normal birthrate is bound to 
curtail normal consumption. The economic equilibrium 
of a nation can be maintained only as long as a nation 
does not neglect the production of consumers (children). 
But when a nation increases production of commodities 
and cuts down the number of consumers of the commodi¬ 
ties, then something worse than Malthus foresaw has be¬ 
fallen the world. 

Olive Schreiner, in her book, “Woman and Labor,” ar¬ 
gues that there is no need of maintenance of what can be 
called the normal birthrate, for today, she says, one 
worker produces enough for ten persons. Not exactly true! 
But—accepting Miss Schreiner’s statement as if it were an 



Economic Changes and Adjustments 427 

arithmetically correct fact, why not consider also its cor¬ 
ollary, that if one worker today produces for ten persons, 
it follows that ten consumers are necessary to consume what 
the one produces. And how are we going to keep up con¬ 
sumption if we refuse to produce the ten consumers neces¬ 
sary for what the one produces? In former times, if we 
accept Miss Schreiner’s loose way of putting it, one worker 
on the average consumed what he produced, whereas today, 
one man produces for himself and nine others. But how 
can we hope to cope with this new situation if we delib¬ 
erately curtail the production of consumers—that is, if we 
keep down the birthrate? 

To the positive checks on population enumerated by 
Malthus—war, pestilence, famine, disease, vice, crime, etc., 
—and the preventive checks urged by the neo-Malthusians 
—John Stuart Mill encouraged another check, viz., that 
resulting from ‘ 1 the opening of industrial occupation freely 
to both sexes,” and which “industrial and social inde¬ 
pendence of women” would produce, he contended, “a 
great diminution of the evil of overpopulation.” 

But we may seriously question whether society as a whole 
is benefited to any extent by a wholesale transference of 
those who, in the design of nature, are intended to be pro¬ 
ducers of consumers to the list of producers of commodities. 
Indeed it is an open question which only those immediately 
concerned—the women themselves—can answer, viz., 
whether they themselves are economic gainers or losers; 
and whether, after all, they are not helping with their own 
hands to set the stage for a terrible catastrophe involving 
the whole human race. 

Penalizing the Worker for His Fecundity 

There is much in Malthus’ elaborate treatise on the Prin¬ 
ciple of Population which compels acquiescence; and there 
is much commendable logic in his argument; nor was Mal¬ 
thus a monster of unmorality, as some would have us be¬ 
lieve. It must be remembered that he wrote of a time, and 
up to a certain period, and around a series of economic 


428 


The New Capitalism 


facts that were pertinent at the time he wrote. Indeed 
there are lands where many of the conditions described by 
Malthus have not materially improved even to this day. 
But I am not speaking of those lands. I am not thinking 
at this moment of India, Japan, Russia, China, Turkey, etc. 
I am confining myself strictly to the United States, for 
which territory I am willing to go on record as saying that 
for the next two centuries the menace of overpopulation 
will not seriously affect us. My quarrel, if you care to call 
it such, is not with Malthus or his theory, but with those 
economists in the United States who have deliberately per¬ 
verted the Malthusian formula into an argument defending 
and justifying the payment of less than a living wage to 
the tribe of workers. * 

Just read, for example, the following from “The Wealth 
and Income of the People of the United States,” by Pro¬ 
fessor Willford Isbell King, (p. 249) : 

“Of late we have heard a tremendous demand from 
would-be social reformers for a ‘living wage.’ We hear 
the employers on all sides denounced as heartless villains 
because they do not pay enough to allow their employees to 
live in decency and comfort. But this sentiment seems to 
arise from a superficial analysis of the difficulty. Why are 
the employees not in a position to demand a satisfactory 
return for their services? Whose fault is it? And the 
ultimate blame must be laid not upon the employers but 
upon the parents and grandparents of the workers them¬ 
selves. Why did these ancestors of the present generation 
bring into the world children whom they could afford 
neither to educate nor to train for some occupation, the 
products of which were sufficiently in demand to make a 
living wage easily secured ? Why indeed ? Simply because 
these same parents and grandparents were either incom¬ 
petent, ignorant, or unwilling to restrain their animal pas¬ 
sions. Here we have an excellent example of ‘visiting the 
iniquity of the father upon the children unto the third and 
fourth generation 

To my humble way of thinking the emphasis placed by 


Economic Changes and Adjustments 429 

certain Capitalistic economists on the doctrine of birth 
restriction, and their contention that wages are low be¬ 
cause there are too many workers, is solely for its psycho¬ 
logic effect upon the workers themselves. If the haunting 
thought that he himself, and not the Capitalistic System, 
his own ‘‘iniquity,” or the “iniquity” of his ancestors, 
and not the iniquity of the Capitalistic System, is to blame 
for his economic helplessness and quandary, can be firmly 
rooted into the consciousness of the average wage worker, 
and of his wife and progeny, a kind of sordid docility 
will eat into their souls, a sickly resignation overpower their 
wills; after which their resentment against the “established 
order” will never be more than a feeble protest. 

4 

A Puzzling Problem 

But however we may interpret the Apologia of the Cap¬ 
italistic economists and their defense of a system of wages 
notoriously inadequate for decency; however we may con¬ 
temn the obtuseness or blindness of those who, in the face 
of an admitted excessive productive ability, advocate a 
reduction in the number of consumers, it cannot be denied 
that the situation is fraught with difficulties, and in its 
entirety constitutes an enigma of gigantic proportions. 

In the days of Malthus it was believed that the time was 
inevitable when population would outstrip the means of 
subsistence. Conditions today prove that just the reverse 
has happened. Production is vastly greater than con¬ 
sumption. There are more workers than jobs; more mer¬ 
chandise than markets. And things will grow rather worse 
than better in this regard, in the years to come. 

The Wrong Solution 

Perhaps Richard Arkwright's townsfolk, who, as Car¬ 
lyle tells us, ‘ ‘ rose in mob ’ ’ against the barber inventor of 
the spinning wheel “for threatening to shorten labor, to 
shorten wages; so that he had to fly, with broken wash-pots, 
scattered household, and seek refuge elsewhere,” (even his 
wife turning against him)—had a clearer vision of what 


430 


The New Capitalism 


was in store for them and their descendants than we are 
willing to admit, for is it not written that “the children of 
this world are wiser in their generation than the children 
of light?” 

At any rate it would seem that the things they dreaded 
have truly come to pass in England, where, we are told, a 
system of “ca’ canny,” of “go slow,” is sapping the eco¬ 
nomic vitality of the nation. This is not because the Eng¬ 
lish workmen are lazy, or unwilling to give fair service for 
their wage, but rather because there are more workers than 
jobs—and by dragging out their work they imagine that 
they are doing a wise thing, distributing the work among 
a greater number. A fool philosophy if ever there was 
one! 

Adding Fuel to the Fire 

In our own United States things, economically, are not 
so bad as in England,—not yet; but, alas, the fool philos¬ 
ophy of the British workmen is beginning to manifest itself 
in the muddled minds of some American workers, w T ho 
imagine that by prolonging a job they are—doing what?— 
Helping other workmen ? No! not so much that as better¬ 
ing their own condition—increasing their own wages, 
obtaining more pay than they otherwise would for perform¬ 
ing a certain piece of work. Apart from the utter dishon¬ 
esty of such a procedure it is the stupidest kind of logic. 
When a workman can, reasonably computed, complete a 
given job in one day’s time, but puts in two days, he does 
not make himself richer, but his neighbor poorer. And 
when, as the enemies of Labor insist, work that was form¬ 
erly performed by one skilled worker, now, under restrict¬ 
ive rules requires two or three skilled workmen, a situation 
is created that is bound to alienate the sympathy of the 
public, as well as weaken Labor’s cause. 

“In normal times,” says James H. Collins, “economists 
estimate, if our industrial organization works five and a 
half eight-hour days, it will produce so much that the coun¬ 
try can consume only about four days’ output. One and 



Economic Changes and Adjustments 431 

one-half days’ output must be shipped abroad. As we are 
now selling little abroad, and our buying power is at an 
average of less than 50 percent, we are really using only 
two days’ output. Briefly, there are more people in the 
marketing and financial departments of industry than are 
needed to do the business of the country. When we get 
back to normal many of these people will be eliminated— 
the high-profits merchants and the salaried workers who 
were overpaid or rendering no real service.” 3 

“No one,” says Professor John R. Commons, “can 
squarely defend all of the restrictive policies of unions, but 
if they are carefully examined . . . they will be found 

to be not so very different from the restrictive policies of 
employers and of non-unionists. In all cases these 'policies 
have their source in the knoivledge that there are not, at all 
times , enough markets to take all of the work and the 
product at fair wages and profitable prices.” 

The Pot Galling the Kettle Black 

• 

If Labor is attempting to limit production so that it will 
be employed twelve months a year, and Capital is attempt¬ 
ing to speed up production so that it can “lay off” Labor 
on an average three or four months a year—who is the 
greater culprit? On whose side is the greater right; on 
whose the greater wrong? Which group is more justified? 
I make no defence and offer no justification for either 
group. But while I am on this subject let me add that he 
who can see any difference between the fixed determination 
of the employer to get as much work as possible for as little 
wages as possible, and the growing determination of the 
worker to get as much wages as possible for as little work 
as possible, has a finer sense of moral values than I have. 

A Rift in the Clouds 

No! this country is not suffering from an excess of pro¬ 
ducers so much as from a dearth of consumers. Undercon- 

3 From “The White Collar Job and the Big- Jolt,” by James H. 
Collins, Saturday Evening Post, September 3, 1921. 



432 


The New Capitalism 


sumption, rather than overproduction, is our economic dif¬ 
ficulty. And this underconsumption is, in a great measure, 
attributable to the niggardly wage alloted by Capital to 
those who labor; and certainly accentuated thereby. 

Things cannot go on forever as they are going; there 
must be a fundamental readjustment or something will 
break—something go to smash. Since the Capitalistic 
Entrepreneurs have nothing else to offer except periodical 
unemployment and less than a living wage, it behooves the 
New Order to “find a way” out of the encircling difficulties. 

I shall not particularly emphasize here what seems to me 
the logical and basic solution, namely—a greater number 
of marriages, which would naturally yield an increase in 
the number of producers of consumers; but that is a social, 
rather than an economic solution, and it is the economic, 
rather than the social, side of the problem that I desire to 
discuss. Therefore I propose as a possibility under the 
New Order, a reduction in the number of the working hours 
of the producers. Or it would be possible to institute a 
system of fewer working days. Also raising the age limit, 
which would keep out of the ranks of the workers boys and 
girls of tender years. Also retirement from active labor 
at an earlier age, which is possible only if wages are fair 
and reasonable, and other sources of income have been 
opened to the workers. These, be it remembered, are not 
“ideals” that I should care to incorporate as tenets of the 
New Order,, nor propose as an integral part of my system 
—but I should certainly advocate them, should it ever 
seem necessary or desirable, in order to safeguard the many 
against the evil of unemployment and less than a living 
wage—the fecund parents of misery and poverty. 

The Great Triumph 

This brings us to the pivotal point of this whole subject 
—the question of constant employment of the workers and 
uninterrupted business. I have said, and I shall repeat 
it here, that a system of fair and reasonable wages, with a 
maximum exchange value, is preferable to a system of 


Economic Changes and Adjustments 433 


excessively high wages with a minimum exchange value, 
for these two very important reasons: 

1: Fair and reasonable wages will permit the employ¬ 
ment of a larger number of workers than would be possible 
under a system of excessively high wages. 

2: When wages are reasonable, prices will be lower than 
when wages are excessively high. When prices are reason¬ 
able, people will buy more. It is this purchase stimulus 
that keeps the machinery of industry and the wheels of 
commerce going. The purchase of more commodities will 
insure, as nothing else can, steady prosperity and the con¬ 
tinuous employment of workers. 

If nothing else were to be gained by the New Capitalism 
than these two things—the constant employment of prac¬ 
tically all workers, and continuous business—Labor would 
have achieved its greatest triumph. 


CHAPTER XXXI 
What About the Farmer? 

T HE earliest form of wealth was land. The first 
monopoly was a land monopoly—the complete own¬ 
ership of which was centered in a few, who were 
wealthy because they owned the land, and who grew 
wealthier from year to year because to them, by virtue of 
their ownership, belonged the usufruct of the labor of those 
who in order merely to subsist were compelled to make 
their land productive. Thus the economic subjection of 
the populace of Europe, literally speaking, can be said to 
have been rooted in the soil—a subjection which continued 
after the passing of the system of Feudalism; 1 and exists 
to this day, though in a more modified form, in spite of the 
French Revolution of 1789, and even more modern revo¬ 
lutions. 

Our Escape from Land Monopoly 

Luckily the United States has escaped the economic evils 
that arise from a monopoly of the land by a few, although 
a careful study of the development of our country reveals a 
tendency toward individual ownership of immense tracts 
of land, which might, in due time, have developed into a 
monopoly by a few; but a number of things saved us from 
this particular brand of serfdom. Among the obstacles 
unfavorable to the development of a land monopoly may 
be mentioned the vast extent of the territory—the abun¬ 
dance of land, its free and wide distribution, the difficulty 
of access, the lack of transportation facilities, a small popu¬ 
lation, and a limited market for the products of the soil, 

i I emphasize the system of Feudalism because only the crude 
system, or form, was changed—the principles, practices and policies 
of Feudalism continue to this day, have, in fact, been advanced to 
a science. 


434 



What About the Farmer? 


435 


particularly since many families owned or occupied small 
tracts of land which they cultivated. In 1800 the United 
States was considered an agrarian nation, 85 percent of 
the population being listed as agricultural. 

But the one great thing that economically intervened and 
saved us from the menace of a land monopoly was the 
development of the industries, which tempted many by 
offering vastly greater opportunities; and held out a greater 
promise of profit and a greater reward of wealth to those 
who had the courage to venture upon their pursuit. Never¬ 
theless today the productive farm land of the United States 
is widely distributed among nearly six and a half million 
owners, whose aggregate wealth is estimated at eighty bil¬ 
lion dollars. 

The nation owes a debt of gratitude to the farmers of the 
United States, that wonderful race of men and women, who, 
in spite of many hardships and handicaps, and numerous 
discouragements, stuck to the land, and who by dint of 
hard toil, patience and perseverance, raised husbandry to 
the dignity of a great industry. The Homer who can 
fittingly commemorate the heroism and valor of those hardy 
pioneers into an epic poem, is not yet born. 

The Nation's Rock of Gibraltar 

The farmers of the United States themselves seem not to 
realize that all these years they have stood, and they stand 
today, a formidable bulwark of safety between the Mam- 
monistic Capitalists and the economic enslavement of the 
nation—I mean that portion of the population which I have 
called the non-investor group, and to which the farmers 
themselves—though some may be loath to admit it—belong. 
At any rate, throughout this book, for the reasons stated 
in Chapter IV, I have included the farmers in the non¬ 
investor group. In spite of the fact that the farmers of 
the United States, strictly speaking, are investors, the 
aggregate income they derive from their joint investment 
and labor, on an average is hardly more than the equivalent 
of a fair living wage. From the 1919 Income lax report 


438 


The New Capitalism 


we learn that for the 418,945 individuals engaged in “Agri¬ 
cultural and related industries, ’’ reporting an income, the 
average net income was less than $3000. Taking income 
as a basis, I think I am justified in considering the group 
of farmers, in spite of their investment—of an estimated 
value of eighty billion—as wage earners, or non-investors. 
And this classification gains in merit when we remember 
that like the wage earner, the average farmer has been, and 
is, the helpless victim of the Capitalistic system; the foot¬ 
ball of the Capitalistic group. 

The Rock Shaken ~by Capitalistic Winds 

I have said that the people of the United States have 
escaped the evil of land monopoly; but they did not entirely 
escape paying the penalty of a form of land monopoly as 
sinister as any to be found anywhere on earth. Who owns 
the forests, the oil lands, the coal and iron mines—the nat¬ 
ural resources of the nation? Not the farmers! But a 
small coterie of men who, for the most part, have their 
habitat in Wall Street, LaSalle Street, and other formida¬ 
ble centers of finance, and to whom the farmers, no less 
than the wage earners, are compelled to pay a heavy tribute. 

Oh, yes! the farmers own millions of acres of productive 
land; but they do not reap the full measure of benefits to 
which they are entitled as owners and producers; for the 
same group of men who, through methods we need not 
inquire into at this time, have gained absolute possession 
of all the valuable coal and iron, oil and timber lands, also 
reap incalculable profits from the products of the lands 
owned by the farmers—profits, which, in point of quantity, 
are as great, I believe, as the clear profits of the agricul¬ 
tural owners. 

1 will not pause to dilate on the mechanism of boards of 
trade, and chambers of commerce, nor descant on the 
methods of these institutions through whose agency the 
leading cereal crops are sold from five to ten times over in 
the course of a year. None knows better than the farmer 
that boards of trade, and chambers of commerce, are not 


What About the Farmer? 


437 


conducted for the farmer’s benefit—and certainly not for 
the benefit of the public. 

Nor will I waste any time on the commission houses and 
their methods; nor make any attempt to show the sundry 
devices by which immense profits are made by a few thou¬ 
sand non-producers out of the produce of farms—butter, 
milk, eggs, poultry, fruits, cotton, etc. 

Nor will I interrupt the pursuit of the main theme of 
this chapter to emphasize the economic anomaly and gro¬ 
tesque absurdity of men living hundreds of miles from 
farms—men who own nor hoe nor plow, who did not give 
so much as an hour of toil to the tilling of the soil— 
sitting in offices fixing the prices of all farm products, rais¬ 
ing them one day, lowering them the next, and so on, mak¬ 
ing a profit on each fluctuation. Would the United States 
Steel Corporation allow farmers to fix the price of steel 
products? Would the packers permit the farmers to fix 
the price of lard or pork, or veal, or canned goods ? They 
would not! 

No wonder the farmers of the United States are banding 
themselves into national organizations, firmly resolved that 
hereafter they shall have something to say about the price 
of their own products. No wonder they feel that if it is 
necessary, as the Capitalistic protagonists contend, to sell 
farm crops from five to ten times in the course of a year, 
that they themselves mean to profit thereby. 

On the Trail of Truth 

I have not hesitated in this book to tell Capital what I 
think, nor have I spared Labor in my criticism. I would 
be false to myself if I did not also tell the Farmers the 
truth as I see it, regarding the economic situation as it 
affects them, or as others are affected by it. In all fairness, 
therefore, let me go on record as saying that if the farmers 
of the United States, through their national associations, 
could wrest control of marketing institutions from the 
Capitalistic group; and if by virtue of that absolute control 
they themselves w T ould hereafter pocket the profits which 


438 


The New Capitalism 

at present go to gamblers and speculators—the public 
would not be benefitted one iota. Nothing more could be 
said to have happened than a transference of large profits 
from the group of speculators and gamblers to the pockets 
of the farmers. But as far as the general public is con¬ 
cerned, living costs would remain practically the same; 
there would still be no relief from high prices. 

I have labored in this book to expose the fundamental 
fallacies that have complicated the whole economic contro¬ 
versy. Among other things I have shown that the wage 
earner, in spite of a high quantity wage, is no better off 
than he was twenty or twenty-five years ago. It behooves 
me now to apply the principles vindicated thus far, to the 
situation as it affects the farmer. In a general way I will 
say that the farmer, like the wage earner, is today precisely 
in the same position he was twenty years ago; he is no 
better off; he hasn’t advanced a single step. Indeed I seri¬ 
ously question, whether, following the Capitalistic lead, the 
farmers have not betrayed themselves into self deception. 

The Flattery of Statistics 

In spite of rosy statistics showing a tremendous increase 
in the value of farm properties—when w T e apply the acid 
test we discover that a considerable part of the statistical 
increase in the value of properties—or in the wealth of 
farmers—must be called Inflation, that is to say—is an 
increase in a theoretical market price rather than in value. 
That this increase in price has been advantageous to a lim¬ 
ited number of individuals within the farmer group goes 
without saying; but it has brought no substantial benefits 
to the farmers in the aggregate. 

No doubt some will attempt to defend the price increase 
by the notorious 4 4 law of supply and demand ’ ’; while others 
will urge the mythical Capitalistic device “earning power” 
as the logical explanation. As regards the former, viz., 4 4 the 
law of supply and demand,” I shall say nothing at this 
time, except that I have omitted two chapters I had written 
about it from this volume, because I intend, at some later 


What About the Farmer? 


439 


time, to discuss this damnable “law” in extenso, within the 
proportions of a fair sized volume. As regards “earning 
power,” I have had some things to say in the first part of 
this book which may still be remembered by the readers. 
If so, it will suffice, then, to apply the principles involved to 
the subject under discussion in order to reveal the mockery 
of that Capitalistic trick. When the price of land is in¬ 
creased on the basis of its maximum “earning power,” 
quite naturally there is a point beyond which the price can¬ 
not go without diminishing the normal return to the owner 
of the land, thus reducing its value. This is precisely what 
is the trouble at the present time. So high has the price 
of land become that it is impossible to make it yield a 
reasonable return except by raising the prices of all farm 
products to a practically prohibitive point; which, as I 
shall endeavor to show in this and the next chapter, penal¬ 
izes the city consumers while bringing no material ad¬ 
vantage to the farmers themselves. 

Increase in Price—Decrease in Value 

Briefly then, as far as the farmers in the aggregate are 
concerned, a quantity increase in the price of farm land; 
or a quantity increase in the prices of farm products, means 
little or nothing to the farmers in the aggregate, for the 
reason that the purchasing power of money has declined to 
such an extent, that the bigger amount of money they 
receive either for their land or products has a minimum 
exchange value. It must be clear to all that no increase in 
the earning power of productive property can be predicated, 
so long as a decrease in the purchasing power of the money 
received for its products is predicable. 

Consequently the value of land was no greater in 1920 
than in 1900. Only one thing can increase its value, and 
that is a marked increase in its productivity. There may 
have been a slight increase in this regard per average acre 
during the past twenty years, but certainly not enough to 
justify a threefold increase in price. Only one explanation 
can be advanced to justify the threefold increase in the 


440 


The New Capitalism 


price of land, namely that it was necessary to offset the fall 
in the purchasing power of money, and so maintain the 
value the land had in 1900. 

The Difference Between Price and Value 

I shall waste no time defining value. To do so with any 
degree of completeness—to pursue the chameleon character 
of value through all its nuances, would require a book the 
dimensions of the volume before you. Rather will I illus¬ 
trate the difference between price and value in a manner 
easily understood by all already interested. Let me assume 
that a farmer bought a farm in 1900, paying a thousand 
dollars therefor, and that he sold it in 1920. Unless he 
received four thousand dollars he lost money, for the 
shrinkage in the value or purchasing power of money has 
been so great during the twenty years (from 1900 to 1920) 
that four dollars are but the equivalent of the former one 
dollar. 

Conversely, if a farmer bought a farm and paid four 
thousand dollars for it, he purchased no greater value , 
though paying a threefold bigger price for it. For the 
exchange value of the farmer’s dollar has shrunk as much 
as the exchange value of the wage-earner’s dollar. Until 
this point is hammered into the brain of every intelligent 
man there is bound to be much muddled thinking along 
economic and commercial lines, and “confusion worse con¬ 
founded.” 


Victim or Culprit ? 

It is clear, from all this, that whereas the farmer is 
receiving a considerably larger quantity of money for his 
property in a sale, he is compelled to pay considerably more 
for whatever property he may purchase with the proceeds. 
But he is not growing richer. He is not increasing, and 
cannot, increase the purchasing power of his money—the 
exchange value of his dollars; and without any increase in 
these, all his transactions are merely an even exchange, 
regardless of the quantity of money involved. 


What About the Parmer? 


441 


Who has disturbed the purchasing power of money; who 
is responsible for the fall in the exchange value of the 
dollar? Not the farmer, although he has been unjustly 
blamed for the depreciation of the dollar. Indeed I’ll 
defend him from the charge. More than that, I’ll show 
that not only has he not been benefited, but on the con¬ 
trary, he has been the principal sufferer from the fall in the 
purchasing power of money. He has been the victim, not 
the culprit. 

The Farmer's Failed “Wealth” 

First I ’ll show that the farmer was no wealthier in 1920 
than in 1900. The depreciation in the exchange value of 
the farmer’s dollar, and in the purchasing power of his 
money, seriously affects the farmer’s wealth. Here are the 
relevant statistics: 

Number of Value of Farm 


Farms Property 

1900 . 5 , 737,372 $ 20 , 439 , 901,164 

1910 . 6 , 361,502 40 , 991 , 449,090 

1920 . 6 , 447,998 80 , 500 , 000,000 


Please note the increase in the “Value of Farm Prop¬ 
erty” from twenty billion in 1900 to eighty billion in 1920. 
But it is to be remembered that the exchange value, or pur¬ 
chasing power, of the dollar, shrank from a 100 cents value 
in 1900 to a value of about 25 cents in 1920. 2 In other 
words, using the purchasing power of money as a basis: 
the twenty billion dollars in 1900 had each a 100 cents value, 
or a twenty billion dollar purchasing power; whereas the 
eighty billion dollars in 1920 had but a value of 25 cents, 
or a total of twenty billion dollars of purchasing power. 
In brief, the seemingly formidable increase from twenty to 
eighty billion dollars was a theoretical price increase, and 
not an increase in actual value, or wealth; a quantity in¬ 
crease, not a purchasing power increase. As a matter of 

2 According to Professor Kemmerer the dollar in 1920 had a 
value of twenty-seven cents as compared with the dollar of 1896. 
But for the sake of easy computation by the reader I am taking the 
liberty to fix the approximate value of the 1920 dollar at twenty-five 
cents. 






442 


The New Capitalism 


fact the eighty billion dollars in 1920 had no greater value, 
or purchasing power, than the twenty billion dollars in 
1900. No doubt the farmers in the aggregate, considered 
themselves vastly wealthier in 1920 than in 1900; in reality 
they had not progressed at all, for as regards the purchas¬ 
ing power of their wealth, and the exchange value of their 
money, they were no better off than they were twenty 
years ago. 

More Money but Less Purchasing Poiver 

As regards his farm production, unless the farmer in 
1920 received four dollars for every dollar he received in 
1900, he is making less money than formerly. As a matter 
of computable fact there has been no such increase in the 
prices of farm products. The peak prices the farmer en¬ 
joyed for a brief period during the course of the war, 
beyond a doubt yielded him an increase in quantity of 
money, but hardly in purchasing power, as the following 
statistics “Wealth Production of Farms” (Statistical Ab¬ 
stract, 1920, p. 180), clearly show: 


1900 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 


Wealth Produced 
Total Gross. 

. .. 5 , 009 , 595,000 
... 9 , 037 , 391,000 
.. . 8 , 819 , 175,000 
... 9 , 342 , 790,000 
... 9 , 849 , 513,000 
... 9 , 984 , 961,000 
.. . 10 , 774 , 491,000 
. . . 13 , 406 , 364,000 
.. . 19 , 331 , 000,000 
. . . 22 , 480 , 000,000 
.. . 24 , 961 , 000,000 
.. . 19 , 856 , 000,000 


Since our comparison is between 1900 and 1920 we will 
confine ourselves to a consideration for these two years only. 
The approximately twenty billions of wealth the farmers 
produced in 1920 just about equalled in purchasing power 
the five billion they produced in 1900. 














What About the Fanner? 


443 


No Accruing Benefits 

As a result of the enormous increase in the so-called land 
value—or rather market price, and the increase of all indus¬ 
trial products—considerably greater than the increase in 
the prices of his farm products,—the farmer must borrow 
vastly greater sums of money than formerly. I do not 
know how much more money, but continuing the ratio 
adopted in this chapter I should say that he must borrow 
four dollars where formerly one dollar sufficed. If in 1900 
it was necessary for him to borrow a thousand dollars, in 
1920 he borrowed four thousand. But the four thousand 
had no greater purchasing power or exchange value, than 
the former one thousand. In other words he is paying inter¬ 
est on four dollars instead of one. At five percent he is 
actually paying twenty cents interest, where formerly he 
paid five cents; twenty dollars, where formerly he paid 
five dollars; two hundred dollars, where formerly he paid 
fifty dollars. 

Or reverse the proposition. Let us suppose that the 
farmer is a lender instead of a borrower, and that he 
receives as interest twenty cents where formerly he received 
five cents; twenty dollars where formerly he received five 
dollars; two hundred dollars where formerly he received 
fifty dollars; but note the difference. His twenty cents 
today has no greater purchasing power than the five cents 
formerly; the twenty dollars w T ill buy no greater quantity 
of goods than he could have bought with five dollars twenty 
years ago; the two hundred dollars makes him no richer 
than the fifty dollars a score of years before. 

I will not pause to inquire wdiether there has been any 
material increase in the amount of taxes the farmers paid 
in 1920 over the amount they paid in 1900. Let each farmer 
answer for himself. But if the tax rate has been advanced 
on account of the supposed increase in the amount of the 
farmers’ wealth, or the supposed increase in the value of 
their property—(and no doubt it has) they were worse off 
in 1920 than in 1900. For be it remembered that all through 


444 


The New Capitalism 


the years the decline in the value or purchasing power of the 
farmer’s dollar has been as great as the decline in the wage 
earner’s dollar. The farmers must never lose sight of the 
fact that for them, as well as for the wage earners, the 
exchange value of the dollar, the purchasing power of 
money, has shrunk considerably. If he buys he must pay 
so many more dollars; if he sells he receives more dollars, 
but they have a smaller purchasing power. 

The Chief Beneficiaries 

I have shown that the farmer in reality does not grow 
richer by a quantity increase in the price of his land; nor 
has he been benefited by an increase in the price of farm 
products. Who, then, has been the beneficiary ? 

The answer is simple! The Capitalistic group, or the 
constituent members of the Capitalistic System! If it 
were possible to obtain all the statistics involved it could 
be demonstrated that the Capitalistic group has for years 
derived profits from four distinct agricultural sources: 3 

1: From speculation in the principal cereal crops, both 
before and after they are harvested. 4 

2: From selling and re-selling sundry agricultural prod¬ 
ucts after they leave the farm. 

3: From the larger quantity of borrowings of farmers, 5 


3 On account of the supplementary processess necessarily involved 
I am deliberately excluding manufactured products as a source of 
profit derived by the Capitalistic group from agricultural production. 

4 Senator Capper, in an article in Hearst’s Magazine (March, 
1921), says: “More wheat was sold in Chicago last October than 
was raised in the entire United States in 1920. Last year’s corn 
crop was sold fourteen times in Chicago before a bushel of corn had 
reached the markets. More than $100,000,000 was lost in three 
months by speculating in cotton and wheat, nearly half of which was 
cleaned up by commission houses and brokers.” 

5 The latest census statistics reveal that the mortgage indebtedness 
on farms increased from $1,726,172,851 in 1910 to $4,003,767,192 in 
1920, or 131.9 percent. It is estimated that the interest bill of the 
farmers of the United States on mortgages and loans amounted to 
about $200,000,000 a year. 

Since the above was written, still later statistics seem to indi¬ 
cate an even worse state of affairs. Thus in an editorial (Herald- 
Examiner, February 22, 1923) we read that the American farmers’ 
income is “nine billion dollars. He owes twelve and a half billion, 
his interest charges are a billion, and his taxes a billion and a quar¬ 
ter, maybe a billion and a half.” 

The following from an article by Robert Watson Winston, describ¬ 
ing conditions in the state of North Carolina (see The Nation, Febru¬ 
ary 21, 1923), gives a poignant picture of existing conditions: 

"Tens of thousands of small farmers are owned body and soul 
by the landowner and the money-lender. Their crop is mortgaged 



What About the Farmer 1 ? 445 


and interest charges vastly greater in size on account 
of higher prices of farm lands and to enable them to 

purchase the higher priced implements and equip¬ 
ment. 

4: From the higher prices the farmer must pay for his 
implements, tools, etc., and, of course, for the sundry 
articles of merchandise necessary to his existence. 

I have no means of knowing how great is the volume of 
profit derived by the Capitalistic group, but in the aggre¬ 
gate, I think, (if it were possible to obtain the actual sta¬ 
tistics) the clear profit of the Capitalistic group is as great 
as the clear profit of the agricultural group. Indeed it is 
greater, for, as I have already pointed out, the 
dollar in the hands of the Capitalistic group has always 
a 100 cents value; whereas in the hands of the farmer only 
a fraction of its original value remains. 

The Capitalistic Weather-Vane 

Is it possible that the Capitalistic group, not content with 
the profits from the farmers’ production, is now reaching 
out for actual possession of the land? Is it possible that 
the Capitalistic System has formed plans to capitalize the 
productive ability of the farm workers, as they have already 
capitalized the productive ability of industrial and other 
workers? Or rather—to overcapitalize the farming indus¬ 
try as it has overcapitalized the manufacturing industries, 
transportation systems, public utilities, etc.? This is cer¬ 
tain to happen if the various farm groups succeed in their 
endeavors to control their output and the markets, thus 
depriving the Capitalistic group of some of the enormous 
profits they have been reaping for years from their board 
of trade transactions and manipulations. 

Only a few months after I privately expressed the above 
thought, the actual proof of the design and of the carrying 

before it sprouts, and if cotton and tobacco prices reach a low level, 
which happens many years, not only is there no margin over and 
above the debt, but a deficit which leaves the farmers deeper in the 
mire than ever. . . . Competent observers have estimated that 

between two and three hundred thousand of these tenant farmers— 
‘croppers/ as they are called—and their families are not possessed of 
the wherewithal for even the simplest sort of decent life.” 



446 


The New Capitalism 


out of the Capitalistic project fell under my eyes. In the 
March 17, 1921, issue of the Manufacturers Record (Bal¬ 
timore, Md.), we read: 

“ Formation of a Farm Finance Corporation in South 
Carolina to help handle the cotton crop of 1921 is under 
way, and with the recent action of the South Carolina 
Legislature looking to the standardization of grades of the 
staple held in warehouses, is expected to be completed in 
a short time. 

* ‘ This was announced here by Bernard M. Baruch, broker, 
head of the War Industries Board and of the economic 
division of the peace delegation of the United States, who 
has had a series of conferences with J. S. Wanamaker, 
president of the American Cotton Association, and who 
expects to furnish at least a part of the initial capital for 
the corporation. 

“Mr. Baruch said that whatever stock he purchased in 
the enterprise would be offered by him to the citizens of 
South Carolina at cost, as he is anxious for the corporation 
to be controlled entirely within the state. In addition to 
furnishing a part of the necessary capital, Mr. Baruch said 
he would handle the securities of the corporation. Mr. 
Baruch is a South Carolinian by birth. 

“Asked if an effort would be made to dispose of all the 
stock within South Carolina, he said disposal of the secur¬ 
ities would involve no effort, in his opinion, and that he 
expected the stock to be quickly sold, as it was a first rate 
investment. 

“It was reported some weeks ago that such a corpora¬ 
tion was to be organized in South Carolina to handle the 
tobacco crop, but this Mr. Baruch denied, saying that the 
present plan had doubtless given rise to this rumor. He 
said the American Cotton Association had given its full 
approval to the scheme, and that he understood similar 
corporations would be formed in other States under the 
auspices of the association.” 


What About the Farmer? 


447 


The Capitalistic Net 

Who can doubt that the success of this experiment means 
its permanent establishment, and its further extension to 
all farm properties? Who can doubt that the Capitalistic 
group, having gained control of all natural resources, the 
basic materials, and the industries; having reached out and 
captured all the industries, even those entirely unrelated 
to their original charters—is now reaching out to draw 
into their net the one industry which thus far they have 
been unable to grab—the agricultural industry. I may be 
mistaken in my opinion—I sincerely hope I am—but my 
guess is that the Capitalistic System is trying to get con¬ 
trol of and regulate farm production; that it has its plans 
all laid to organize the important staple producing farms 
of the nation on the same basis that it has organized the 
industries—viz., by overcapitalization—and issuing im¬ 
mense quantities of securities against the inflation. 

While I believe that the Capitalistic group, to complete 
its economic conquest of the nation—and of the world—is 
now reaching out for the farms—I want to make clear the 
thought that is in my mind. I do not think that the aim of 
the Capitalistic group is to own or purchase outright the 
farm lands of the nations. That is really not necessary, 
for even now it fixes the prices of the products of the farms 
and controls the market, and that is sufficient for all imme¬ 
diate Capitalistic purposes. But see what the Capitalistic 
group loses by not being enabled, at the present time, to 
buy and sell lands on the stock market! What a splendid 
source of income is as yet closed to it! My guess is that 
within ten or twenty years farm lands will have issued 
against them, stocks and bonds, largely in excess of their 
present valuation, and Wall Street will literally be deluged 
with watery wealth. 

When Wall Street Controls the Farms 

Why, indeed, should not all the productive farm land of 
the nation be bought and sold at least once, if not twice, a 
year, just as the industries and railroad systems are bought 


448 


The New Capitalism 


and sold once or several times every twelve months? Why, 
indeed? When we stop to reflect that land tenure today 
is not what it was thirty years ago, and that the tenant 
class is growing, we begin to realize that the first step 
towards a breaking up of the diversified land ownership 
has actually been taken, and as a result, it will be easier to 
arrange stock, or security holdership, in farm lands. If 
one farm can be made, with the Capitalistic System of 
figuring “earning power,” “cost of production,” etc., to 
comfortably support two people, or rather families, namely 
owner and tenant, it can be made to support a still greater 
number. In other words the Capitalistic System is 
gradually bringing about conditions with regard to farm 
lands in the United States that, we may rest assured, it will 
utilize to its own great advantage when it considers that 
the proper time has arrived. 

“Will you walk into my Parlor?” 

Will the farmers bite on the bait? Will they succumb 
to the lure of speculative profits, or will they stand firm for 
what is right and fair and just and decent ? Will they walk 
into the Capitalistic trap? I do not know, for human 
nature is weak; and it is the common experience of man¬ 
kind that an appeal to cupidity and self interest is gen¬ 
erally more successful than an appeal to decency and 
common sense. As I see it the farmers of the United States 
have come to the parting of the ways. They must choose 
their path—one leads to Wall Street and ultimate ruin, 
the other to actual farm ownership and safety. Today the 
farmers stand between the Mammonistie Capitalists and 
the non-investor group as the French soldiers stood against 
the invading German army, except that in the present 
situation the Capitalistic group is the invading army. And 
if the farmers of the United States wish to save themselves 
as well as the nation, there must come from their lips, as 
did from the lips of the French soldiers at Verdun, the 
chorus cry: ‘ ‘ They shall not pass. ’ ’ The nation has its ear 
to the ground! 


CHAPTER XXXII 

Where Will the Farmer Stand? 

T HERE is no excuse for any misunderstanding be¬ 
tween the agricultural portion of the population and 
the industrial portion. It is to their mutual interest 
that the farmers and the wage earners find the ground of 
common agreement. I have sought, in this book, to impress 
upon the wage earner that the quantity of his wages is of 
less importance than their exchange value; and necessarily 
so, too, I would impress upon the farmer that high prices 
for his products carry with them a depreciated exchange 
value—a considerably lessened purchasing power of his 
money. As I see it the farmer should be just as much 
interested in the exchange value of the workers’ wages as 
in the exchange value of the prices he receives for his prod¬ 
ucts ; and the wage earner should be just as much interested 
in the prices the farmers receive for their products as in 
his own wages. For just as one worker exchanges his labor 
for the labor of other workers, so the farmer exchanges his 
labor (products) for the labor (products) of the workers 
in other branches of production (industry). The exchange 
of labor and of labor’s products, is the sum and substance 
of a nation’s economic life. The goods of one group are 
exchanged for the products of all other groups. Unless 
goods are exchanged, stagnation sets in. 

The Interdependence of Economic Groups 

In other words, the various economic groups are mutually 
dependent. It is all folly to say that one group of pro¬ 
ducers is more important than all the other groups. It is 
quite true that husbandry was the first industry. Food is 
the first requisite; and because it is so we can indeed say 
that the farming industry is of the utmost importance to 


449 


450 


The New Capitalism 


a nation’s life. For we are not living in primitive times, 
when families could (and many did) produce their own 
food essentials, even depending on hunting and fishing for 
a part of their food supplies. Happily all those things are 
in the dim past. The system of exchange of products is 
here to stay; that’s why it’s so great a pity that the various 
groups have not yet grasped the fundamentals involved in 
the interchange transactions. 

The Exchange of Products 

The average wage earner is principally concerned in, and 
most affected by, prices of products, whether agricultural 
or industrial, that must be classified as essential living com¬ 
modities, viz., clothes, food and shelter. Whereas the aver¬ 
age farmer is less concerned about his food commodities, 
since he raises them for himself; and only in a moderate 
degree in clothes; while shelter or rent, in the majority of 
eases, is less of a vexation to the farm owner than to the 
average wage earning city dweller. 

But on the other hand the farmer is vitally interested in 
many commodities in which the average wage earner or city 
dweller has no direct concern; for example, in plows, har¬ 
nesses, implements, tools, wagons, etc., a hundred com¬ 
modities essential to the conduct of a farm. 1 

While I am unable to say what proportion of their income 
the farmers of the United States exchange for the com¬ 
modities produced by the industrial wage-earners, it is, no 
doubt, a large amount in the aggregate, as the following 
statistics would seem to show: 

Value of Farm Value of Manufactured 
Products Products 

1914 $ 9,894,491,000 $24,246,434,724 

1919 19,856,000,000 62,427,905,000 


i And I haven’t said one word about the many commodities that 
neither wage earner nor farmer uses or purchases; yet both wage 
earner and farmer are penalized in that they ultimately pay the 
higher prices, the higher interest charges and, of course, the bigger 
profit on articles, purchased, I might say, exclusively by the Capital¬ 
istic group; and the purchase of which only adds to the value of 
their investment; for example: steel rails, locomotives, engines, ma¬ 
chinery, etc. 



Where Will the Farmer Stand? 451 


But even though the farmers of the United States had 
spent every dollar of the nearly ten billion they received in 
1914 for their products; or the nearly twenty billion they 
received in 1919, for manufactured products, it must be 
remembered that only a part of their purchases are made 
for what are called ‘ ‘ living commodities, ’ ’ while a consider¬ 
able part of their purchases of manufactured goods are 
tools, implements, equipment, machinery, etc., and there¬ 
fore less an expenditure than an actual investment, which 
increases the value of their properties. Whereas the wage 
earner can show neither investment nor profit. If the 
farmer buys a plow, who makes a money profit—the wage 
earner? No! the Capitalistic employer of those who made 
the plow makes the profit. At no time does the wage earner 
receive more than a living for having made the plow. 2 3 And 
so it is for every manufactured commodity that the farmer 
must purchase. All the profits go to the Capitalistic group 
—none of it to the wage earner group. 

The Inter-Relation of Economic Groups 

Moreover, to the wage earner attaches the compulsion to 
spend all he earns; and a fair part of his earnings are 
expended for farm products. Of the approximately forty 
million men and women “engaged in the gainful occupa* 
tions” ten million are listed as agricultural. But instead 
of launching a new division based on workers , let me rather 
employ the simple division of farm families and city fam¬ 
ilies. In round numbers there are ten million farm families 1 
and ten million city families. Consequently the average 
farmer produces for his own and one city family. Or we 
may express the formula conversely by saying that every 

2 A comparison of the annual revenue of the six and a half 
million farm owners given under “Value of Farm Products” (see p. 
450), and of the wages of the industrial wage earners is interesting: 

Number of Industrial Total Amount 

Wage Earners of Wages 

1914 .7,036,337.$ 4,079,332,433 

1919 .9,098,119. 10,545,905,000 

3 This division would seem to embrace farm workers and farr* 
owners, and tenant farmers. 







452 


The New Capitalism 


city family supports itself and one farm family. I will not 
particularly emphasize in this chapter that the tenant 
farmer is growing more numerous. But since we are deal¬ 
ing with the economics involved in the subject, it behooves 
me to say that, translated into clear language, this would 
seem to indicate an unhealthy tendency, in that the con¬ 
tinued growth of the tenant farmers would ultimately put 
the average city family to the necessity of supporting two 
farm families—owner and tenant. 

I could pursue this phase of the subject over many, many 
pages, but nothing would be gained thereby. The specific 
purpose I have in mind is to emphasize that agricultural 
and industrial production go hand in hand. The farmers 
and the wage workers are interdependent; they exchange 
their products; their interests are common, mutual and 
identical; their relationship reciprocal and complementary. 
There can be, there must be, no conflict between them. 
There is only one technical difference between them; the 
industrial workers receive wages, whereas the farmers are 
dependent upon prices. 

Excessive Farm Production 

The war has demonstrated the great productive ability 
of the farmers of the United States. Not only does their 
normal production adequately supply the normal needs of 
our own population, but a surplus remains for export. 
With intensified production our farms could easily produce 
enough to supply a considerably greater number of people. 
If there is any logic in the Malthusian theory that the con¬ 
stant tendency of a nation’s population is to outstrip its 
food supply, the farmers have shown that we need not waste 
any of our time in worry. Considering their wonderful 
productive ability, so splendidly proved during the period 
of the war, neither this generation nor the next, nor the 
next, will be subjected to suffering on account of an inade¬ 
quate farm production. 



Where Will the Farmer Standi 453 


A Disastrous “Remedy” 

The particular menace—and it is not a purely theoretical 
condition—that hangs over the farmers of the United States 
today, is that their normal production is greater than the 
consumption. So real is this menace that no less a person 
than the Secretary of the Department of Agriculture, 
Henry C. Wallace, himself a farmer, or at least publisher 
of several farm papers, and, therefore, supposed to be 
conversant with farming conditions in his own state as well 
as with the farm situation throughout the nation, recently 
suggested that production of some of the cereals be cur¬ 
tailed 25 percent. The dominant idea in Secretary 
Wallace’s mind when he made the suggestion, was that by 
the deliberate curtailment of output prices of farm products 
would remain nearer to the level of war time prices. Secre¬ 
tary Wallace, no doubt, believes that curtailed farm pro¬ 
duction is to the farmers’ interest. A moment’s reflection 
reveals the fallacy of his proposal. 

When Secretary Wallace advocates a 25 percent less 
farm production for the purpose of keeping up high prices 
for farm products he entirely overlooks the city dwellers, 
who would be compelled to pay materially increased prices 
in consequence of a lessened production. He also seems to 
forget that the materially increased prices for farm prod¬ 
ucts, as a result of curtailed production, would automatic¬ 
ally lessen consumption. In the end, neither producer nor 
consumer would be benefited economically. 

It is an absolute certainty that the average city worker 
(wage earner) cannot increase the amount of money he pays 
for farm products. According to Government statistics 
the average family pays 40 percent of its family income for 
food. If the family income is $1000—then $400 goes for 
food products. If the family income is $1500—then $600 goes 
for food products. Assuming that the average wage earner’s 
income is sufficient to meet the living costs of an average 
family, he is paying forty cents out of every dollar he earns 
merely for food. I do not mean to say that all of this amount 


454 


The New Capitalism 


goes directly to the farmer, for many of the farm products 
are subjected to manufacturing processes, and go through 
the hands of middlemen before ultimately reaching the 
wage earner’s table; but it cannot be denied that a consid¬ 
erable part of the 40 percent expended by an average family 
for food, goes to the farmer. 

Reduced Wages Curtail Consumption 

Now that wages have been reduced from 25 to 50 percent, 
for practically the whole tribe of city workers,—wage earn¬ 
ers as well as small salaried employees,—the family income 
will be less. This reduction in income, even though still 40 
percent were figured as applying to the item food, would 
necessarily reduce the amount spent by an average family 
for food. If a worker’s family income in 1920 was $1500, 
and he spent 40 percent, or $600 for food; and his income 
is cut to $1000, still spending 40 percent he automatically 
cuts down the food allowance to $400. But if prices remain 
approximately as they were when his income was $1500, a 
cutting down in the quantity of consumption is imperative. 

A Remedy Worse than the Disease 

Let me illustrate in the simplest possible way why farmers 
would not benefit by deliberately curtailing their produc¬ 
tion. Let us assume for the purpose of this illustration 
that the nearly six and a half million farm owners in a given 
year raise 800,000,000 bushels of wheat—a normal crop, let 
us call it; and that the price is one dollar a bushel. Then 
it occurs to them that by cutting down production by one 
half, the price will be two dollars per bushel. The result, 
then, would be a 400,000,000 bushel crop, for which they 
would receive as much at two dollars a bushel as they re¬ 
ceived the year before for 800,000,000 at one dollar a bushel. 
You will observe that in the aggregate they do not receive 
any greater quantity of money in spite of the higher prices 
they received. 

But let us assume that on account of the great scarcity 
created by the deliberate reduction in production the price 


Where Will the Farmer StancH 455 


of wheat would go to three dollars a bushel. Would they 
receive $1,200,000,000 for their 400,000,000 bushels? No! for 
there would be so decided a drop in consumption as to nat¬ 
urally cut down their sales; for it is to be remembered that 
thus much and no more can the average wage earner spend 
for food. Consequently, if prices of food products go up he 
purchases less quantity. Or he might insist on wage in¬ 
creases to enable him to purchase the usual quantity of food; 
but in that case the prices of all non-food commodities 
which the farmers must normally purchase, would advance, 
and the greater quantity of money the farmer receives for 
his wheat, would disappear in the greater amount he must 
pay for what he must purchase. 

The curtailment remedy defeats its own purpose; is, in 
brief, no remedy at all. The argumentative farmer might 
say that for the smaller crop he will require less seed and 
only half the land; and of course his work is cut down by 
one half. Quite true! but that way lies the road to ruin, 
which may indeed be delayed a few years, but in the end 
disaster will surely overtake him. Let those who are wise 
read as they run. 

Two Formulas 

The ideal formula, and to the maintenance of which the 
farmers should bend their efforts, is, normal production, 
normal prices, and normal consumption. Tamper with this 
formula and trouble ensues—trouble for all concerned. I 
lay it down as an axiom, that the economic equilibrium can¬ 
not be disturbed with impunity—the penalty must be paid 
sooner or later, not only by one party but by all parties 
concerned. This must be clear to everyone who is not 
utterly devoid of common sense, not to speak of logic. Judge 
for yourself. Assume, for the moment, normal production 
and abnormal prices. The result is subnormal consumption, 
and that means if not absolutely a less, at least no greater, 
income for the producer, to say nothing of the incidental 
suffering of the victims of a less than normal consumption. 

But the viciousness of Secretary Wallace’s proposal be- 


456 


The New Capitalism 


comes apparent when one reduces it to a formula. What he 
proposes is subnormal production, attended by abnormal 
prices. This would lower still more an already subnormal 
consumption. It would, moreover, intensify the suffering 
of the wage earner families—and visit deleterious conse¬ 
quences upon their constituent members—particularly the 
children. But overlooking this fact, which belongs rather 
to the realms of sociology than economics,—clearly the pro¬ 
ducing farmers would not be the beneficiaries of any arbi¬ 
trary system which may best be expressed as follows: Sub¬ 
normal production, abnormal prices, and sw&-subnormal 
consumption. 

In short the farmer would not be benefited in the least. 
Even though curtailed production might bring him higher 
prices per ton, bushel, or pound, the higher prices would 
not bring him a bigger amount of money in the aggregate. 
Lessened farm production with resultant higher prices for 
a smaller unit of production, does not and cannot increase 
the farmers ’ quantity of money income, for, those who must 
buy would meet the situation by cutting down their pur¬ 
chases probably even beyond the smaller supply produced. 
It is unbelievable that a man of Secretary Wallace’s intelli¬ 
gence should seriously propose to the farmers of the United 
States so disastrous and vicious, an economic 11 remedy. ’ ’ 4 

“Exchange Value” Once More 

But even though the farmer, by producing less and charg¬ 
ing higher prices for the smaller quantity produced, could 
increase his quantity income, his economic condition would 
still in no wise be improved, for the exchange value of his 
money, its purchasing power, would be no greater. Even 
though it were possible to keep up the higher war prices 
for farm products the farmer would still be no better off, 


4 In his letter to W. E. Holler, of the Flint, Mich., Chamber of 
Commerce, Secretary Wallace wrote: “Kill off the fallacy that it 
is immoral for farmers to adjust their production to the probable 
demand by curtailing- a particular crop in the face of a present or 
prospective over supply and ruinously low prices—a thing manu¬ 
facturers have been doing from the beginning of time .”—Quoted from 
The Chicago Her aid-Examiner, June 23, 1921. 



Where Will the Farmer Stand 1 ? 457 

for the high prices he receives for what he sells would be 
absorbed by the high prices he would be compelled to pay 
for what he must buy. The high prices he receives for 
what he produces are reduced to nullity by the high prices 
he must give for what others produce. 

The process of exchanging high priced agricultural prod¬ 
ucts for high priced industrial products is essentially a can¬ 
cellation process. No benefit whatever accrues, either to 
the agricultural producer or to the industrial producer (i. e. 
wage earner). And when I use the word producer here it 
is in its literal sense, for the average farmer is a wage 
earner, before he is an investor. Without his labor his in¬ 
vestment is dead. He cannot go to Europe for a year or 
' two or three years and expect to derive benefits from his 
property unless he is a large landowner, and has his busi¬ 
ness so thoroughly systematized that his personal labor or 
supervision is not necessary to its continued success. There 
are some such in the United States, but their percentage of 
the total is negligible. In the majority of cases the agri¬ 
cultural proprietor must give his personal supervision and 
labor. 

Which being the case he must, for all practical economic 
purposes, consider himself classed with the w r age earners, 
rather than with the Capitalistic group. It is from non¬ 
investors (wage earners) rather than from investors (Capi¬ 
talists) that the farmer derives his livelihood and his profits. 
It is from the continued patronage of the non-investors 
(wage earners) that the farmer will hereafter, as in the 
past, derive his greatest benefit. Indeed the welfare and 
prosperity of the industrial wage earners and the welfare 
and prosperity of the agricultural wage earners are of a 
piece. They cannot be separated without injury to both 
parties. 

The Solitary Solution 

Prices for farm products have seriously slumped, as far 
as the producer (the farmer) is concerned, but the slump 
has brought no relief to the consumer (the wage earner), 


458 


The New Capitalism 


who is compelled to pay in the course of his retail purchases 
of them, fluctuating prices whose average through the year 
at least approximates the prices he paid for them in 1920, 
for be it remembered that the aggregate living costs of the 
average wage earner’s family, which includes the item rent, 
are practically what they were when living costs were at 
their peak. 

There is but one hope for both farmer and wage earner, 
and that is not in higher prices or higher wages, but in a 
greater exchange value of the wages of the industrial work¬ 
ers and a greater purchasing power of the prices which are 
the wages of the agricultural worker. The power to restore 
the dollar to its maximum value lies in the hands of the 
wage earners and farmers. 

The farmer must take his stand—either he must array 
himself on the Capitalistic side against the wage earning 
non-investors; or he must take his stand with the wage 
earning non-investors, against the encroachments of the 
Capitalistic group, thus saving not only the wage earner 
but himself, from complete submergence. 

It should not be difficult for the farmer to decide. For all 
these years he has been at the mercy of the Capitalistic 
group. Has the Capitalistic group ever considered the far¬ 
mer’s welfare? Let each farmer answer the question for 
himself. Is it reasonable to suppose that the Capitalistic 
group, whose whole endeavor is to pile up greater and 
greater Capital accumulations, and to concentrate the na¬ 
tional wealth within the hands of a few,—will hereafter 
extend greater consideration to the agricultural producers 
than it has to the industrial wage-earners? 

The One Hope 

Driven to desperation, and in sheer self defense, the far¬ 
mers are organizing themselves into national associations. 
Will they be successful? Frankly, I doubt it, principally 
for the reason that in one vital thing they are, and will con¬ 
tinue to be, dependent upon the organized Capitalistic 
group. As long as they must rely upon the Capitalistic 


Where Will the Farmer Stand? 459 


group for financial assistance to enable them to pay their 
mortgages, or move their crops, so long will they be weak 
and vulnerable—their Achilles heel remain exposed. Under 
my system, in due time, this dependence upon Capitalistic 
assistance, and which is never extended, and even refused 
unless a sightly profit is in sight, will be removed, and our 
cooperation substituted to safeguard the farmers, and serve 
their best interests. 

I can only hope that the various national associations of 
agricultural producers will be in existence and in perfect 
working order when we begin to operate, for it will be alto¬ 
gether simpler for us to cooperate with the farmers organ¬ 
ized than with them disorganized. We can be of greater 
service to them if they are a component, homogeneous, 
united group than divided into smaller units—heterogene¬ 
ous, scattered and ineffective. We may not be able in the 
beginning to help the farmer so much with what he buys as 
with what he has to sell. We can be instrumental in pre¬ 
venting the profits of his production from falling into the 
hands of the non-farm owning, non-farm working Capitalis¬ 
tic group. More than that, under our regime, every dollar 
of money he receives, will have a vastly increased exchange 
value; and every dollar of profit a considerably higher 
purchasing power. 



4 


CHAPTER XXXIII 
No Political Party 

I EARNESTLY beseech those into whose hands the man¬ 
agement of the affairs, and the control of the destinies 
of the New Order will be committed, to make no at¬ 
tempt, and permit no attempt to be made, to organize the 
New Order into a political party. The manifold reasons 
for the undesirability of giving a political character and 
complexion to our organization are so obvious that I hesi¬ 
tate to enumerate them. Still there may be some who hav¬ 
ing insufficiently considered the importance and magnitude 
of the project advocated in this book, may not clearly com¬ 
prehend my caution and counsel. For the benefit of these 
I will briefly summarize my reasons and arguments. 

Business in Politics 

In the first place let us remember that those constituting 
the Mammonistic-Capitalistic Entrepreneur group are not 
organized into a political party, yet they thoroughly con¬ 
trol the politics of the nation, dictating the platforms and 
policies of both of the major parties—not only of the vari¬ 
ous states but of the national government as well. It is 
unnecessary to enter upon a lengthy discussion of this 
phase of my subject. The conclusive facts are recorded in 
thousands of pages of official investigations and reports. 
Moreover, not so many years ago, our popular magazines 
engaged in a campaign of exposure which clearly established 
the premises here stated. To fill pages and pages of this 
book with excerpts and quotations would be like writing 
a voluminous treatise to prove that water is wet. 

Nevertheless to clear myself of any charge of misrepre¬ 
sentation or exaggeration I will quote the first official utter¬ 
ance on the subject made by President Cleveland in his 


460 


461 


No Political Party 

Fourth Annual Message to the Congress of the United States 
(December 3, 1888) : 

'‘We discover that the fortunes realized by our manufac¬ 
turers are no longer solely the reward of sturdy industry 
and enlightened foresight, but that they result from the dis¬ 
criminating favor of the Government and are largely built 
upon undue exactions from the masses of our people. The 
gulf between employers and the employed is constantly 
widening, and classes are rapidly forming, one comprising 
the very rich and powerful, while in another are found the 
the toiling poor. 

“As we view the achievement of aggregated capital we 
discover the existence of trusts, combinations, and monopo¬ 
lies, while the citizen is struggling far in the rear or is 
trampled to death beneath an iron heel. Corporations, 
which should be the carefully restrained creatures of the 
law and the servants of the people, are fast becoming the 
people’s masters.” 1 

“Big Business” Statesmen 

Succeeding Presidents in their addresses or messages to 
Congress expressed similar sentiments with regard to the 
growing menace of Trusts, Combines and Monopolies. But 
after the organization of the United States Steel Corpora¬ 
tion we discern a less critical attitude; in fact, a decided 
change of front became distinctly observable in some of the 
official utterances. Accusations and condemnations are 
transmuted into palliation of deeds, and admiration for 
and laudation of, the doers. Thus in his first Message to 
Congress (December 3, 1901), President Roosevelt said: 

“The captains of industry who have driven the railway 
systems across this continent, who have built up our com¬ 
merce, who have developed our manufactures, have on the 
whole done great good to our people. Without them the 
material development of which we are so justly proud could 
never have taken place. Moreover, we should recognize the 
immense importance of this material development of leaving 


i Messages and Papers of the Presidents, Vol. VIII, p. 774 



462 


The New Capitalism 


as unhampered as is compatible with the public good the 
strong and forceful men upon whom the success of business 
operations inevitably rests. The slightest study of business 
conditions will satisfy anyone capable of forming a judg¬ 
ment that the personal equation is the most important factor 
in a business operation; that the business ability of the man 
at the head of any business concern, big or little, is usually 
the factor which fixes the gulf between striking success and 
hopeless failure. . . . 

“The mechanism of modern business is so delicate that 
extreme care must be taken not to interfere with it in a 
spirit of rashness or ignorance. Many of those who have 
made it their vocation to denounce the great industrial com¬ 
binations which are popularly, although with technical in¬ 
accuracy, known as “trusts,” appeal especially to hatred 
and fear. These are precisely the two emotions, particularly 
when combined with ignorance, which unfit men for the 
exercise of cool and steady judgment. In facing new indus¬ 
trial conditions, the whole history of the world shows that 
legislation will generally be both unwise and ineffective un¬ 
less undertaken after calm inquiry and with sober self 
restraint. Much of the legislation directed at the trusts 
would have been exceedingly mischievous had it not also 
been entirely ineffective. . . . 

“There is widespread conviction in the minds of the 
American people that the great corporations known as trusts 
are in certain of their features and tendencies hurtful to 
the general welfare. This springs from no spirit of envy 
or uncharitableness, nor lack of pride in the great industrial 
achievements that have placed this country at the head of 
the nations struggling for commercial supremacy. It does 
not rest upon a lack of intelligent appreciation of the neces¬ 
sity of meeting changing and changed conditions of trade 
with new methods, nor upon ignorance of the fact that com¬ 
binations of capital in the effort to accomplish great things 
is necessary when the world’s progress demands that great 
things be done. It is based upon sincere conviction that 
combination and concentration should be, not prohibited, 


No Political Party 463 

but supervised and within reasonable limits controlled; and 
in my judgment this conviction is right . 9 ’ 2 

One is not surprised, therefore, that in 1907 the President 
of the United States abetted the United States Steel Cor¬ 
poration in the absorption of the Tennessee Coal and Iron 
Company, the acquisition of which was “particularly ad¬ 
vantageous to the Steel Corporation, because of the iron 
and coal properties that go with it.” (Investigation of the 
United States Steel Corporation Hearings, p. 1129.) 3 

Statesmen on “Big Business” in Politics 

That conditions had not materially altered—except for 
the worse—since President Cleveland’s declaration of 1888 
may be judged from the following from Woodrow Wilson’s 
book, “The New Freedom,” published in 1913: 

‘ ‘ One of the most alarming phenomena of the time, . . . 
is the degree to which government has become associated 
with business. I speak for the moment of the control over 
the Government exercised by Big Business. Behind the 
whole subject, of course, is the truth that, in the new order, 
government and business must be associated closely. But 
that association is at present of a nature absolutely intoler¬ 
able; the precedence is wrong, the association is upside 
down. Our Government has been for the past few years 
under the control of heads of great allied corporations with 
special interests. It has not controlled these interests and 
assigned them a proper place in the whole system of busi¬ 
ness; it has submitted itself to their control. As a result 
there have grown up vicious systems and schemes of govern¬ 
mental favoritism (the most obvious being the extravagant 
tariff) far-reaching in effect upon the whole fabric of life, 
touching, to his injury, every inhabitant of the land, laying 
unfair and impossible hardships upon competitors, imposing 
taxes in every direction, stifling everywhere the free spirit 
of American enterprise. . . . It is an intolerable thing 

2 Messages and Papers of the Presidents, Vol. X, pp. 422, 423, 424. 

3 Senator La Follette is authority for the statement that over 
twelve thousand firms were combined during the seven years of 
President Roosevelt’s administration. 



464 


The New Capitalism 


that the Government of the republic should have got so far 
out of the hands of the people; should have been captured 
by interests which are special and not general. In the train 
of this capture follow the troups of scandals, wrongs and 
indecencies, with which our politics swarm . . . 

“We know that something intervenes between the people 
of the United States and the control of their own affairs at 
Washington. It is not the people who have been ruling 
them of late,” etc., etc. 

More Recent Testimony 

On April 16, 1921, Senator La Follette delivered an ad¬ 
dress in Washington, D. C., under the auspices of the Na¬ 
tional Council of the People’s Legislative Service, from 
w T hich I quote the following: 

“The great issue before the American people today is 
the control of their own government. 

“A mighty power has been builded in this country in 
recent years, so strong, yet so insidious and far-reaching 
in its influence that men are gravely inquiring whether its 
iron grip on government and business can ever be broken. 

“Again and again it has proved strong enough to nomi¬ 
nate the candidates for both political parties. It has domi¬ 
nated the organization of legislative bodies, state and na¬ 
tional, and of the committees which frame legislation. Its 
influence has been felt in cabinets and in the policies of ad¬ 
ministrations and has been clearly seen in the appointment 
of prosecuting officers and the selection of judges upon the 
bench. In business it has crippled or destroyed competi¬ 
tion. It fixes the prices of the necessaries of life and im¬ 
poses its burdens upon the consuming public in defiance of 
the law. In transportation, after a prolonged struggle for 
government control, it is absolute master of the highways 
of commerce.' In finance its power is unlimited. With the 
connivance of the trustees of the people, it has acquired vast 
areas of the public domain and has monopolized the natural 
resources—timber, iron, coal, oil. And this thing has grown 


465 


No Political Party 

up in a country where, under the Constitution and the law, 
the CITIZEN is sovereign. 

“This great power which has taken from the American 
people the control of their own government, is the product 
of Monopoly and Organized Greed. 

At this hour, as never before in the history of this coun¬ 
try, the Congress of the United States is being subjected to 
influences which are undermining representative govern¬ 
ment. 

“Never before, in a generation of time, has the national 
capital attracted so menacing an army of lobbyists seeking 
from the representatives of the people unjust concessions 
to special interests, ” etc. 

Plain Words 

Scores of other statesmen are on record with definite and 
specific charges, accusing the Capitalistic group of consti¬ 
tuting an “invisible government.” But to establish a fact 
already known is not the purpose of this chapter. Let me, 
therefore, continue with the more practical considerations 
involved in my counsel not to venture upon any attempt to 
organize a political party under the auspices of the New 
Order—at least not for many years to come. 

The first requisite for a successful party is a powerful 
national press. While the New Order will endeavor to build 
up a national press, years necessarily must elapse before one 
sufficiently strong to cope with all the established Capital¬ 
istically owned and controlled periodicals can be developed. 
The foolhardiness of launching a party without a press must 
be apparent to all. 

Moreover, we would for many years be a third and a 
minority party, and in competition with the existing major 
parties, which would place us beyond the pale of their 
consideration. Without a party of our own, we can claim 
the attention of both parties. Both parties will court our 
favor and covet our assistance; and so be careful not to an¬ 
tagonize or offend us. Thus we would exercise a greater 


466 


The New Capitalism 


influence and power than if we were entirely detached from 
and opposed to them. 

But even though it were possible, after a score or so of 
years, to win in a state or national election, we would expose 
ourselves to possible defeat in some following election, just as 
one or the other of the existing major parties regularly suf¬ 
fers defeat at present. The inevitable result would be that 
before long we would find ourselves, in order to combat the 
chicanery and trickery of politicians, put to the necessity 
of giving a larger measure of attention to politics than to 
economics, thus inviting both political and economic dis¬ 
aster. 

When the Tail Wags the Dog 

Political economists are prone to accentuate that the po¬ 
litical and economic life of a nation are inextricably inter¬ 
woven; that politics and economics are inseparably linked 
together. And there is a measure of truth in their contention. 
That is why in European countries fiery doctrinaires are 
preaching that their economic emancipation and their politi¬ 
cal liberation can be brought about only by the overthrow 
of the existing governments. 

4 4 Socialism, ’ ’ said Lenin, 44 is impossible without the domi¬ 
nation of the proletariat in the state. ’ ’ In other words, the 
proletariat, according to Lenin’s philosophy, is to be the 
state. This is in no wise different from the famous saying 
of Louis XIV— L’Etat, c’est mois —“I am the State.” 

In Europe there may be reason and justification for the 
several attempts that have been, and are being made, to 
ameliorate economic conditions by radical political changes; 
but not in the United States. And I seize this opportunity 
to note the distinctive difference between my plan and the 
sundry politico-economic isms with which the public is more 
or less familiar. I place myself in uncompromising opposi¬ 
tion to those who declare that the economic redemption of 
society can be accomplished only through the instrumental¬ 
ity of the State. I hold that an economic system that de¬ 
pends for its maintenance upon the exercise of political 


No Political Party 


467 


power, or that has for its basic principle the destruction of 
wealth, the elimination of capital, and the confiscation of 
property regardless of the established processes of law; or 
the dispossession of a group, because a few, or even many, 
within that group have wrongfully acquired property or 
wealth, cannot be approved. Any economic program that 
calls for the violent overthrow of the existing political order, 
whether that order is acceptable or not, is, to say the least, 
a dangerous doctrine. Nor have I any sympathy with any 
economic scheme that is synonymous with a leveling process. 
All radical reform plans and their derivatives, by whatever 
name they may be called, I sweep aside, not so much because 
they are revolutionary but because they would not change 
for the better—but rather for the worse, the conditions 
against which the world is in protest. Granting that the 
present Capitalistic order of society is tyrannical and un¬ 
just, the substitution of any of the radical isms would still 
continue that tyranny and injustice. Its acceptance would 
merely transfer tyrannical control and power from the 
hands of the Capitalistic group to the hands of a none the 
less tyrannical group—call it proletariat or by whatever 
name you choose. 

The Power of the Ballot 

Happily we in the United States are more fortunately 
situated than the people of Europe. Though tremendous 
changes have taken place in our country’s political principles 
and policies during the past few decades—changes which 
perverted our government from a Democracy into a Timoc¬ 
racy—while many public officials have proved unfaithful 
to their trust and betrayed the people, there reposes in our 
hands the franchise through the intelligent exercise of which 
every existing evil can be removed or eradicated. 4 

I hold that fundamentally our political life and our eco¬ 
nomic life are distinct; certainly they are not irremediably 

4 De Tocqueville, author of “Democracy in America,” in one 
of his letters said: “All the world over, Governments are just as 
rascally as nations will allow them to be. This is the only limit 
to their vices.” 



468 


The New Capitalism 


interwoven as they seem to be in the European countries. 
Speaking with particular reference to the United States— 
I am inclined to think that the Capitalistic economists have 
hitherto put an undue stress on the Political features of the 
“science’’ of Political Economy. We propose to put the 
greater stress on the Economy side. Instead of worrying over 
the porisms of Political Economy, we will build up a science 
of Economic Politics—or rather let me call it—Economic 
Polity. A century and a half of experience has revealed 
that the people cannot hope to improve their economic con¬ 
dition through the medium of politics. Perhaps it will be 
easier for them to improve politics by first improving their 
economic condition. A people that is held in economic sub¬ 
jection cannot be politically powerful, however much writ¬ 
ers and speakers may disguise the fact by mouthing the 
word “Democracy” and its variants. As long as the people 
are economically enslaved, so long will they be held in 
political bondage; and all the oratorical boast about ‘ ‘ popu¬ 
lar government” and “government of the people, for the 
people and by the people” are but words, words, words— 
meaningless phrases and inept platitudes. Not until they 
are economically powerful can the people become politically 
potent. 

At any rate—let it never be forgotten that the New Order 
is primarily an Economic Association, organized for the 
definite purpose of bringing about the economic welfare 
and security of the people. If we are true to our prin¬ 
ciples the New Order can get along without any political 
party; the New Capitalism can succeed independently of 
politics. 

“A Daniel Come to Judgment” 

At the Annual Meeting of Stockholders 5 of the United 
States Steel Corporation (April 18, 1921) Mr. Elbert H. 
Gary read a paper entitled “Principles and Policies of the 

5 It would be interesting to know how many of the 160,000 stock¬ 
holders of the United States Steel Corporation attended the meet¬ 
ing ; and their names and addresses; and the amount of the actual 
holdings of each would add to the interest. 




469 


No Political Party 

United States Steel Corporation.” I have no intention of 
analyzing these “Principles and Policies” at this time; nor 
even of discussing Mr. Gary’s utterances, beyond saying 
that, of course, he reiterated his avowed opposition to labor 
unions. “I firmly believe that complete unionization of the 
industry of this country . . . would be the beginning 

of industrial decay,” said Mr. Gary. 

Let that pass without comment. I am not interested in 
that aspect of the controversy at this time. It is only the 
last sentence of Mr. Gary’s discussion of ‘ ‘ labor unions ’ ’ on 
which I shall concentrate for a moment. Says Mr. Gary: 

“It seems to me that the natural, if not the necessary, 
result of the contemplated program of labor unions, if suc¬ 
cessful, would be to secure the control of the shops, then 
of the general management of business, then of capital, and 
finally of government.” 

Mr. Gary’s fears are well founded, but he has the cart 
before the horse. He has somewhat mixed the order of 
procedure. Under the New Capitalism, the people, with 
organized labor, as the nucleus will endeavor first to secure 
control of capital—their own capital, if you please—the 
very capital which Mr. Gary and the entire tribe of Capi¬ 
talistic Entrepreneurs are today using in a high-handed 
fashion, and have ruthlessly utilized for all these years; 
and by the unchallenged use of which he and his friends 
and associates have grown fabulously wealthy; besides ac¬ 
quiring an uncontrolled power which he and his kith are now 
employing to suppress and enslave those who labor for a 
wage. 

No, Mr. Gary, you are in error; the “contemplated pro¬ 
gram of labor unions” under the rule of the New Capital¬ 
ism, does not contemplate “to secure the control of shops 
and management of business ’ ’ until it has taken away from 
you and your kith the ruthless control of capital and all 
that this implies. Your fear that the labor unions will 
finally secure control of government need not disturb you 
for a while as yet, for as the author of the New Capitalism 
I distinctly warn against political maneuvers. But since 


470 


The New Capitalism 


I am on this subject; since you yourself raise the point, 
what possible objection can you offer against any group, 
truly solicitious for the people’s welfare, I will not say try¬ 
ing to secure ‘ ‘ control of government, ’ ’ but endeavoring to 
take the control of government away from you and your 
Capitalistic associates? Or do you really believe that the 
average citizen is so densely ignorant as not to know that 
Big Business—the corporations, the Capitalistic Entrepre¬ 
neurs—the Mammonistic Capitalists—absolutely control 
the politics of the nation ? 

The End of Timocracy 

I have already quoted Aristotle to the effect that there 
are three political constitutions: Kingship (or monarchy), 
aristocracy, and timocracy. “Of these,” says Aristotle, 
“timocracy is the worst,” because it is the rule of wealth. 
“From timocracy,” continues Aristotle, “the transition is 
to Democracy.” 

Timocracy in the United States cannot maintain itself 
except by the potency of party rule; and party rule is wan¬ 
ing fast. At any rate the transition from Timocracy to 
Democracy will not be brought about by any of the existing 
political parties (in whose vapid platform promises the 
people have lost all confidence), but by the people them¬ 
selves who, in the years to come, will choose their own can¬ 
didates, and give their support to men and principles rather 
than to selfish Capitalitic measures, disguised as partisan 
programs. 

It is this belief that persuades me to say that there may, 
—indeed I think there will—come a time when a political 
organization truly representative of the eighty (and more) 
million non-investors will be formed, but not in the usual 
way. Ordinarily a few irrelevant platitudes formulated 
into a ringing platfrom, a picturesque or dazzling leader 
and a striking party name, were considered sufficient to 
arouse popular sentiment and win for it the support of the 
people. 

The New Order must operate along different lines. It 


No Political Party 


471 


must first of all demonstrate its fitness, and prove that its 
principles are safe and sound, and its leaders worthy of an 
increase of trust. These things conclusively proved through 
a series of years, the spontaneous sentiment of the voters 
among the eighty (and more) million will shape itself into 
a majority which in due time will insist on expressing itself 
as a unit at the polls. 

In the meantime from the eighty (and more) million will 
come the legislators and judges and the officials of federal, 
state and city governments, and who will carry into their 
public service the conviction that the interests of the eighty 
(and more) million are at least as important as the interests 
of the twenty million. 

It will be years before this metamorphosis can take place, 
but in the New Order it will surely come to pass. Without 
any effort or design this party will slowly shape itself, and 
all that will be needed to give it entity, is a name. 


CHAPTER XXXIV 
The Concluding Chapter 

W E have been told of the Englishman who, while 
confined in the Debtors’ Prison, wrote a treatise on 
how to wipe out the national debt of England; 
whereat we are supposed to laugh. But we have never been 
told what his plan was; therefore none can tell whether it 
was meritorious or otherwise. Nor is there anyone who can 
deny that if his plan had been tried the national debt of 
England might have been liquidated. Nor can anyone as¬ 
sert that said debtor was more foolish than the government 
that put him behind the bars. 

It is entirely within the realm of possibilities for one sent 
to prison for debt to devise a plan that might bring freedom 
from debt to the nation that sent him there. Certainly it is 
not more incongruous than a barber inventing the spinning- 
wheel. When you come to think about it, nearly all great 
discoveries and inventions were made by most unlikely peo¬ 
ple—by people who were considered failures, or fools, or 
lacking in wit; or ne’er-do-wells, or dreamers— Theorists , 
we call them today. Some of the most biting sarcasm I 
have ever heard, fell from the lips of speakers before Cham¬ 
bers of Commerce crowds, and before Economic Associa¬ 
tions; it was leveled at Theorists. The sarcastic denuncia¬ 
tors were, or at least considered themselves, practical men. 
It did not occur to them that they were of the lowest order 
of theorist—that is, parrot theorists—setting forth the theo¬ 
ries of others—expounding doctrines which they themselves 
lacked the intelligence to originate; dicoursing on prin¬ 
ciples which others, not they, had the ingenuity to discover. 

Theorists and Theories 

Now as a matter of fact, whatever of progress has been 
made in the world, or whatever development with regard 


472 


473 


The Concluding Chapter 

to civilization, it is the result of theories. The American 
continent was discovered because Columbus had a theory. 
When Washington and Jefferson, et at; founded the Ameri¬ 
can Republic, they were theorists,—not practical men! They 
had a theory of government—which, by the way, is still in 
its experimental stages, likely within the next decade or two 
to prove itself a success or a failure. As long as we ad¬ 
hered to the principles underlying their theory our country 
was safe; but now that we ignore their principles, and are 
departing from their theory, the country is in danger; in 
more serious danger than I care to admit. But whatever 
our Government may be today; or will have proved itself to 
be ten or twenty years hence, this must be admitted—that 
the American Government, when first proposed, was a 
theory; its organization and development, the work of theo¬ 
rists. 

In fact, every great achievement in the world was first 
proposed as a theory! Watt, who discovered the power of 
steam, was a theorist; Fulton, who applied the discovery to 
navigation, was a theorist; Stephenson, who turned it to 
land purposes, was a theorist. The telephone, the telegraph, 
the wireless, the aeroplane, the biograph, the automobile, 
the radio, radium—hundreds of other inventions and dis¬ 
coveries, were but the fruition of theories. Write this down 
in your notebook: Theorists, not practical men, have 
pushed the world onward and upward. Theorists, not prac¬ 
tical men, are the hope of the world today. 

One of the cleverest things that Gilbert K. Chesterton has 
ever written is this: ‘ ‘ There has arisen in our time a most 
singular fancy; the fancy that when things go very wrong 
we need a practical man. It would be truer to say that when 
things go wrong we need an unpractical man. Certainly 
at least we need a theorist. A practical man means a man 
accustomed to mere daily practice, to the way things com¬ 
monly work. When things will not work you must have the 
thinker, the man who has some doctrine why they work 
at all.” 


474 


The New Capitalism 

The Failure of Practical Men 

There is a world of truth in these words. If you want to 
know what a frightful mess practical men have made of 
human affairs everywhere, you need but look about you, 
or read your daily paper. Who is responsible for the eco¬ 
nomic, and other, troubles of the world today ? Why, prac¬ 
tical men! Who is responsible for the world muddle ? Again 
the answer is—practical men! Who invented the various 
methods and sundry systems that are threatening to cul¬ 
minate in chaos ? The answer is simple—practical men! 
Who is aggravating and intensifying the universal unrest? 
Practical men! Who is getting the world deeper and deeper 
into the mire ? Echo answers—practical men ! The ter¬ 
ribly disturbed conditions in the United States and else¬ 
where, are the result of the plannings, scheming and plot¬ 
tings of practical men! Which being the case, from prac¬ 
tical men, good Lord, deliver us! 

Therefore, avaunt, ye practical men! Enter the theo¬ 
rist! You need not take off your hat to the theorist, nor 
bend your knee to him; but at least do not pelt him with 
stones, nor stick out your tongue at him. The theoretical 
man adheres to the fundamentals, unswervingly, uncom¬ 
promisingly. In his reasoning processes he hews to the line 
and lets the chips fall where they may. He neither dissem¬ 
bles ; nor deludes himself; nor deceives his fellow man. He 
speaks the truth, as he sees it; and calls things by their right 
name. Smash his principles and his theories fall to the 
ground. But “until thou canst rail the seal” from off his 
bond, “thou but offend’st thy lungs to speak so loud.” 

President Wilson went into the Peace Conference—an 
unpractical man, a theoretical man, a leader; he came out 
of it a practical man, a compromiser, a defeated man. Had 
he adhered to the fundamentals—had he even held uncom¬ 
promisingly to his enunciated theories , the historian a hun¬ 
dred years hence would be compelled to declare him one of 
the greatest men, perhaps the greatest man, of all times. 


475 


The Concluding Chapter 
False Maxims 

A modern writer has said that the world is governed by 
a half hundred maxims, most of which are false. This is 
literally true. It is particularly true with whatever per¬ 
tains to economics. The whole porismatic “science’’ of 
Political Economy is constructed around maxims most of 
which are false. These false maxims have been current so 
long that they are accepted as axioms. Men who in all. their 
lives have never so much as looked at the outside of a book 
on Political Economy,— (and who wouldn’t have the intelli¬ 
gence to understand what they read were they ever to ven¬ 
ture upon the perusal of a few pages of such a book, should 
it accidentally fall into their hands)—mouth them as if 
their mere utterance constituted the finality of human 
wisdom. Thus I have heard men of supposed intelligence 
prate of the “established order” as if it were a sacred and 
unchangeable thing—entirely ignoring that what we call the 
“established” order today, was not in existence a half- 
century ago. Time and again I have heard the statement 
“prices are regulated by the gold supply” made by men 
who could not, for the life of them, tell how much gold, coin 
and bullion, there is in the United States; or how many 
grains of gold are contained in the standard gold dollar. 
And I have heard men who were both ignorant and illiterate 
defend the excessive price of their particular commodities 
by the ‘ ‘ law of supply and demand. ’ ’ It was of this ‘ ‘ law ’ ’ 
of which DeQuincey wrote: “A crazy maxim has got pos¬ 
session of the whole world; viz., that price is, or can be, 
determined by the relation between supply and demand. ’ 5 

Maxims that are false; half truths; perversions of the 
truth; and plain lies—these are things with which the world 
has been governed for many, many centuries. “Go, my 
son,” said a Swedish Chancellor to his son, “go and see 
with what little cost of wisdom this world is governed. ’ ’ 

“Where Ignorance is Bliss” 

How, then, in spite of the falsity of the maxims, and the 
remarkable unwisdom of those who govern us, did the world 


476 


The New Capitalism 


manage to get along as well as it did ? The answer is given 
by the cynic who said that five percent of the people think; 
ten percent, think they think; and eighty-five percent would 
rather die than think. If it were otherwise it would not 
have been possible for a few thousand (or a few million, if 
• "u will) to gather the wealth of the world into their laps, 
leaving to the many millions just enough sustenance to keep 
body and soul together. And it would not have been pos¬ 
sible to foist upon the people a “science” which pretends 
to concern itself with the distribution of wealth, when in 
reality it concerns itself only with the concentration of 
wealth in the hands of a few, and the exclusion of the many 
millions from participation therein. 

“Go, my son,” said a Swedish Chancellor to his son,— 
“go and see with what little cost of wisdom this world is 
governed.” “Go,” might a scholar, in like manner say, 
after a thoughtful review of literature, “go and see how 
little logic is required to the composition of most books. ’ ’ 1 

The One Non-Progressive Science 

DeQuincey, writing in the first quarter of the nineteenth 
century, had in mind those books on Political Economy 
written toward the end of the eighteenth century, and dur¬ 
ing the early decades of the nineteenth. “Political Econ¬ 
omy,” he wrote, “does not advance. Since the revolution 
effected in that science by Ricardo (1817) upon the whole it 
has been stationary.” In the science of Political Economy, 
he maintained, “Nothing can be postulated—nothing can 
be demonstrated; for anarchy, even as to the earliest prin¬ 
ciples, is predominant.” 

But it is not to give concurrence to his views that I quote 
from DeQuincey’s writings, but rather to lead up to a vital 
point, and which seems to me pivotal, in the plan I am pro¬ 
posing. The early economists (among whom Adam Smith 
stands out as the Father; and whose book, “The Wealth of 
Nations,” is by some called “the Bible of Economics”) 
deduced their principles from the conditions actually exist- 


♦DeQuincey’s Essay on “Malthus.” 



477 


The Concluding Chapter 

ing at the time they wrote—long before Industrialism had 
appeared. And it is upon these antiquated ‘ ‘ principles ’ ’ 
(in reality porisms) that modern economists are still build¬ 
ing the nation’s economic life. It is quite comprehensible 
that a book, written nearly a century and a half ago, and 
which purports to state the “principles” upon which the 
wealth of a nation—particularly England’s wealth—neces¬ 
sarily rested, might be esteemed today as “the Bible of 
Economics”—but in that case I should insist on calling it 
the Old Testament, whose usefulness as an economic “guide, 
philospher and friend” ceased with the dawn of the New 
Industrial Revelation. The tremendous changes that came 
over the world as Industrialism developed during more than 
a century’s time, surely call for a New Testament in the 
Economic Bible. Political Economy is the only “science” 
that hasn’t progressed, in spite of the fact that the automo¬ 
bile has displaced the ox-cart. 

When Teeth were Literally Pulled 

Not so many years ago signs in barbers’ shops and win¬ 
dows announced: “Leeching, Cupping and Bleeding Done 
Here; Also Teeth Extracted.” I distinctly recall a tooth¬ 
pulling operation performed by the town barber— 
Schweitzer by name, on old Ulmer, the luckless patient. I 
can see old Schweitzer now, his feet encased in red socks, and 
slippers worn down at the heels, standing on a common 
kitchen chair, behind old Ulmer reclining in the barber 
chair, and boring with all his strength with a corkscrew¬ 
like instrument into the groaning Ulmer’s tooth (or was it, 
perhaps, a vice, and he was fastening his hold on the tooth); 
and then pulling so hard that he fell backward from his 
chair, pulling old Ulmer, who was holding on grim death to 
the barber chair, along with him. Did he get the tooth? I 
do not know, for frightened by old Ulmer’s blood-curdling 
yells, as if he were being murdered, I took flight. This was 
less than two score years ago; I think I was about twelve 
years old at the time. None will deny that dentistry has 
made some progress since then. 



478 


The New Capitalism 


Medical and Economic Doctors 

In any second-hand book store you will find on the 
twenty-five cent counter, hundreds of medical books written 
by men who only a few years ago, were considered authori¬ 
ties. So tremendous and quick has been the progress in 
medical science and everything appertaining thereto, that 
those works are hopelessly out of date, and of interest only 
to antiquarians or collectors of curious books. 

In every department of human endeavor revolutionary 
changes have taken place, but not in Political Economy. 
Economic doctors still perform their miracles by “Leeching, 
Cupping and Bleeding. 5 ’ In brief, political economists, now 
as then, reason from the Capitalistic standpoint and for 
the exclusive benefit of those constituting the Capitalistic 
System. It is under the protective logic of their writings 
that Industrialism begot Capitalism, and Capitalism begot 
Mammonism. 

It cannot be denied that Capitalism and Mammonism are 
self sufficient and successful institutions, and the explana¬ 
tion for this is to be found in the fact that from the begin¬ 
ning every moral principle and every ethical consideration 
has been carefully excluded from all works dealing with 
economics. In the Bible of Moses and the Prophets you 
will find all the rules of morality, by the practice of which 
civilization gradually reared itself aloft. None of these rules 
are found in the ‘ ‘ Bible of Economics. ” It is to their rigid 
exclusion that we must attribute the growth and success 
of Capitalism and Mammonism. 

Moses, we are told, granted a bill of divorce to the Jews 
because they were hard-hearted; but the Economic Fathers, 
of their own volition, absolutely divorced Ethics from Po- 
lical Economy; and the whole human race has been com¬ 
pelled ever since to pay alimony to those constituting the 
Capitalistic family. No wonder the world—that is to say, 
most of the people in it, are poor and discontented. No won¬ 
der there is misery and wretchedness, and crime and degra¬ 
dation, among them. Where will it end, and how? 


The Concluding Chapter 479 

“The Moving Finger Writes” 

f 

It was reflections such as these that urged me to the writ¬ 
ing of this book—the new Evangel of Economics. It was 
in the contemplation of what might happen unless the world 
(and that without much delay), comes to its senses, that I 
found the inspiration for my plan. In my previous writ¬ 
ings I addressed myself to the powerful men who today 
hold the economic destiny of the nation, aye, of the world, 
in the hollow of their hand. I knew, of course, that any 
appeal to them was futile. Neither Moses and the Prophets, 
nor Christ Himself, could move them. Nevertheless, unless 
they curb their insatiable greed for WEALTH, and their 
gluttony for PROFITS—the deluge will surely come. 

Yes, the deluge! I am not a pessimist; neither am I a 
cheerful idiot—sometimes euphemistically called an optim¬ 
ist by the unthinking. But I try always to be calmly sen¬ 
sible, and to view things as they are. I have never been able 
to deceive myself, nor to throw dust into my own eyes. Nor 
am I an alarmist. Neither am I a prophet, nor the son of 
a prophet, nor the seventh son of a seventh son. But when 
I see the black clouds gathering, and the lightning’s flash, 
and I hear the ominous roll and terrific crashes of thunder, 
and say “There’s a storm brewing; it’s going to rain—” 
I am not a pessimist, nor an alarmist, nor am I prophesying; 
I am only reading what is plainly legible in the sky; I am 
only saying what must be clear to all who are neither blind, 
nor deaf, nor perverse. Just as we can read with fair accu¬ 
racy the disturbed elements in nature, so we can in a meas¬ 
ure, interpret the social unrest, the economic upheaval, the 
political disturbances, and the growing discontent, mani¬ 
fest in the United States and throughout the world today. 

Appealing from Peter to Paul 

Since any appeal to the Mammonistic masters and Capi¬ 
talistic over-lords of this earth is bound to fall on deaf ears; 
since, moreover, it is clear, judging from the sundry things 
happening at the present time, particularly in the United 



480 


The New Capitalism 


States, that they do not intend to release, but to strengthen 
still more their 'stranglehold upon the throats of the people, 
I turn to the people themselves to tell them what is so clear 
to me—that their future destiny rests in their own hands. 

Probably I shall not escape the charge of “setting class 
against class.” James E. Thorold Rogers, M. P., in “Six 
Centuries of Work and Wages—the History of English 
Labor ’ ’—says in his preface: 

‘ ‘ The charge of setting class against class has always been 
made by those who wish to disguise their own indefensible 
advantages by caluminating the efforts of those who discern 
abuses and strive to rectify them.” 

Jeremy Bentham, in his essay, “Britain in 1817,” says: 

“Propose anything good; the answer is at hand:—wild, 
theoretical, visionary, Utopian, impracticable, dangerous, 
destructive, anarchial, subversive of all governments—there 
you have it.” 

The Plan I propose is necessarily a theory, until it as¬ 
sumes the proportions of an experiment, in which case I 
maintain that it will demonstrate itself a complete success, 
for the reason that the principles upon which it is based 
are fundamental and sound. 

I do not think it necessary in this chapter to give a sum¬ 
mary of all I have said but I will add a word of warning. 
Let none imagine for a moment that the things I propose 
shall be done will be as easy of performance as is the read¬ 
ing, or as was the writing of this book, written, only after 
twenty years of thought, study, analysis and computation. 
Above all, let none imagine that the Capitalistic-Mammon- 
istic Entrepreneurs will surrender instantly, or that they 
will not put up a bitter fight. Indeed while the non-invest¬ 
ors are guffawing over a Charlie Chaplin picture, or dawd¬ 
ling over their evening paper; while the wage earners are 
yawningly making up their minds whether they are awake 
or asleep; and while certain Labor groups are nebulously 
debating whether, after all, quantity wages for themselves 
are not preferable to economic independence for all the non- 


The Concluding Chapter 481 

investors, they are diligently taking steps to prevent this 
new child from growing up. 

Back to Eartli 

Throughout the writing of Part II, I have, for the sake 
of convenience, imagined the existence of the New Order, 
and visualized the New Capitalism as if in actual operation. 
Will the New Order ever become an entity? Will the New 
Capitalism develop into a reality ? I do not know! I have 
lived too long to harbor delusions. But this I do know, that 
if ever Labor will lift itself to a higher plane it will be 
through some such plan as mine; not necessarily the precise 
plan I have formulated, but at least one built upon the fun¬ 
damental principles, which I have merely restated. 

It is quite possible that years will elapse before those 
most concerned will begin to discern merit in my plan. Per¬ 
haps the present generation will have passed away; but the 
time will surely come—say around the year 1975—when 
some one who has not entirely lost the power of analysis, 
the capacity to think, and the ability to reason, will com¬ 
pute “what might have been” had my plan been followed. 
He will seize upon my statement that under the New Capi¬ 
talism the average non-investor family will be enabled to 
save from $100 to $450 a year, and compute what the savings 
of sixteen million families would have amounted to within 
twenty-five years, say from 1925 to 1949. His figures will 
read about as follows: 

i 

At the rate of $100 a year their aggregate savings would 
have amounted to $1,600,000,000 a year, or $40,000,000,000 
within twenty-five years; or $2,500 per family. 

At the rate of $200 a year, their aggregate savings would 
have amounted to $3,200,000,000 a year, or $80,000,000,000 
within twenty-five years; or $5000 per family. 

At the rate of $300 a year, their aggregate savings would 
have amounted to $4,800,000,000 a year, or $120,000,000,000 
within twenty-five years; or $7500 per family. 

At the rate of $400 a year, their aggregate savings would 



482 


The New Capitalism 


have amounted to $6,400,000,000 a year, or $160,000,000,000 
within twenty-five years; or $10,000 per family. 

At the rate of $450 a year, their aggregate savings would 
have amounted to $7,200,000,000 a year, or $180,000,000,000 
within twenty-five years; or $11,250 per family. 

And he will be at some pains to make clear that the figures 
represent only aggregate savings ,—that if the savings had 
been cumulatively invested in the sundry enterprises of the 
New Order, and earned from five to six percent a year, and 
compounded—the Capital accumulation would at end of the 
twenty-five years be considerably more than double the 
amount of the savings . 

To illustrate what he means he will take the case of a man 
twenty years of age in 1925, and who under the New Capi¬ 
talism would be enabled to save, let us say, $200 a year; and 
who invests each year’s savings in, say six percent, securi¬ 
ties of the enterprises of the New Order, and allows his sav¬ 
ings and interest to accumulate. At the end of twenty-five 
years, or by the time he is forty-five years old, this man 
would have accumulated a fund of over $11,000. 

He will— 

But why pursue this theme further. “ Though I were to 
speak with the tongue of men and of angels”; though I 
were to continue to write in this fashion till doomsday, I 
could add nothing to what I have said, nor augment my 
argument, to show that 

‘ ‘ Men at some time are masters of their fates: 

The fault, dear Brutus, is not in our stars, 

But in ourselves, that we are underlings.” 


ff 

A Postscript 

M Y interest in economic subjects dates back a quarter 
of a century. From early boyhood I was an in¬ 
defatigable reader; fiction was my chief delight. 
During my college days I changed from fiction to belles- 
lettres —essays, poetry, drama. History was added in due 
time. The one subject which I knew had a literature of its 
own, yet which failed to interest me, was Political Economy. 
Statistics were my pet aversion. 

One day there fell into my hands a little book of essays 
on economic subjects. I have forgotten the author’s name 
and the title of the book—but no matter. Not being par¬ 
ticularly interested in the subjects discussed I read it cas¬ 
ually, until I came to the following sentence: 

“The poor are getting richer and the rich are getting 
poorer.” 

This statement—one of supposed fact by a supposed 
authority—made me pause and ponder. Instinctively I felt 
that the writer was not telling the truth. I took a mental 
survey of the little suburb in which I lived. I knew every 
family and its circumstances. They were for the most 
part working people, all of them poor. As far as these sev¬ 
eral hundred families known to me, were concerned, the 
author’s statement was not true. None of them was getting 
richer—all of them were as poor as they had been ten or 
fifteen years before, and I concluded that at least one-half 
of the sentence quoted above was a lie. 

But how about the other half, viz., that “the rich are 
getting poorer”? There were no rich men in my commu¬ 
nity, but there were ten or twelve families in those times 
considered well-to-do—small business men worth between 
ten to perhaps fifteen thousand dollars. Were they getting 
poorer? Yes! some of them were; in fact a number of them 
ultimately became bankrupt. So there was some justifi- 

483 



484 


The New Capitalism 


cation, after all, for the author’s statement that “the rich 
were getting poorer. ’ ’ It was literally true with regard to 
the few who abided in my immediate neighborhood. 

But being of an inquisitive mind I was not satisfied with 
the fact. I wanted to know the why and wherefore. What 
were the underlying reasons for this anomaly? I wanted 
to know precisely what was responsible for the change in 
the status of the well-to-do. What was making them, if not 
poor, at least less wealthy? There could be no peace for 
me until I had found the complete answer to my sundry 
questions. 

In due time I made the discovery that a tremendous 
change was taking place: The small business man could 
not compete with the encroaching big business man. To 
attempt competition was inviting bankruptcy. A few, prob¬ 
ably not realizing what was going on, were foolish enough 
to try it, with the inevitable result: they were pushed 
against the wall. In particular, at this moment, I recall 
the fate of a splendid family known to me, living in an¬ 
other part of the city, the father and sons of which had 
built up a lucrative business, dealing in oil. Then along 
came the Standard Oil Company, undersold them, and so 
drove them out of business. I can call by name, too, a 
number of small butchers, and a sausage maker, who were 
compelled to go out of business because they could not com¬ 
pete with the big slaughterers. But all this is now ancient 
history. 

Thus I arrived at the conclusion that what the economic 
writer had stated, viz., that the poor were getting richer, 
was not true; nor was it true that the rich were getting 
poorer. The thing that was true, and which he did not 
state—was that the small business man was being ruth¬ 
lessly eliminated. 

My interest in economic subjects was now thoroughly 
aroused. True, I had hoped to be able to pursue my studies 
without bothering much about statistics, which always 
worried and mystified me. In brief, for several years I 
followed the line of least resistance—concentrating on those 
subjects which did not depend on wearisome statistical 


485 


A Postscript 

tables for their comprehension and mastery; and slighting 
those which did. But I soon discovered that if I wanted 
to get at the bottom of things I would have to conquer my 
antipathy for statistics. This I bravely resolved to do. 
It was a bitter pill, but I swallowed it. For a year or two 
I continued my studies faithfully, but without enthusiasm, 
doggedly groping my stumbling way among the labyrin- 
thal mazes of charts, diagrams, statistical tables, and per¬ 
centages. 

Then suddenly a great light began to break in upon me. 
I had frequently heard the defiant challenge: ‘ ‘ There are 
the figures, and figures don’t lie.” Like everybody else I 
accepted the rather trite and silly saying as a truism—an 
indisputable and incontrovertable fact—the argument un¬ 
answerable. But in due time I discovered that it was pos¬ 
sible to lie through the medium of figures as well as through 
the medium of words. A Scottish philosopher neatly ex¬ 
pressed it when he said: “As the statist thinks, the bell 
clinks.” Moreover, just about this time I made the 
acquaintance of a prominent public man—“a gentleman 
and a scholar,” who had spent a number of years in an 
important branch of the Government service. With him I 
discussed many things, particularly statistics. He told me 
of a certain case in which, to his knowledge, certain official 
statistics had been altered by order of a certain high official, 
to suit this official’s purposes. While this startling piece 
of information did not help to increase my faith in 
statistics, nor my respect for statisticians, it did increase 
my determination to get under the skin of statistics. 

It was a French philosopher who said that men employ 
speech to conceal their thoughts. After many years of 
patient analysis of thousands of sets of statistics, and their 
correlation, I am willing to go on record as saying that the 
purpose of statistics seems to be to conceal the truth, and 
to confuse, confound, and deceive the public. 

By the same process of logic I have arrived at the con¬ 
clusion that the whole “science” of Political Economy is 
built around a framework of half truths, perversions of 
half truths, and plain and statistical untruths. And I 


486 


The New Capitalism 


determined that one day I would write a book which would 
lay bare the fundamental fallacies of this vaunted 4 4 sci¬ 
ence, ’ 7 and the glaring sophistries of those who exploited 
it; while at the same time setting forth the true principles 
and premises, and upon which alone it is possible to build 
an orderly economic system. And I flattered myself that 
the net result of my labors would constitute a veritable 
Symphony in Economics. 

With this definite purpose in mind I continued my eco¬ 
nomic studies, making copious notes and many computa¬ 
tions, while writing down all the independent conclusions 
at which I was arriving. On July 4, 1920, I began the 
actual work of composition. For a whole year I wrote— 
an average of a thousand words a day. But the more I 
wrote the bigger became my task, and my subject. At the 
end of twelve months I took an inventory of the progress I 
had made. I found that while I had written a full three 
hundred thousand words I had hardly scratched the surface. 
All that I had done in a year’s time was not even a phrase 
of my planned Symphony. 

It was then that I saw the magnitude of the task I had 
set for myself, and the utter hopelessness of ever accom¬ 
plishing so prodigious and ambitious an undertaking. I 
realized that to do justice to myself and to the subject, I 
would have to write not one, but twenty books—twenty 
ponderous volumes, the writing of which would demand 
years of studious solitude and intensive concentration, none 
of which I could afford to give. Besides, who would read 
a work of such proportions? 

Kegretfully I abandoned my original plan to write an 
Economic Symphony. What I am offering the public 
under the title “The New Capitalism ” is nothing more 
than a few elementary lessons on a few of the principles 
of economics, and those, corrective of technique rather 
than exhaustive of the theme. There is hardly a paragraph 
that could not be developed into a chapter; hardly a chap¬ 
ter that could not be elaborated into a book. Therefore 
let it be understood that the various chapters constituting 
this single volume are not a compendium, not even an out-* 


487 


A Postscript 

line of the more ambitious work I had in mind when I began 
to write. ‘ ‘ The New Capitalism ’ ’ is nothing more than an 
attempt to strike the deeper and the rarely sounded notes 
in our nation’s economic life, a work essentially fragmen¬ 
tary in character, the fragments pieced and fitted together 
into, I hope, a not inharmonious whole. 

Under the circumstances it is not strange that a kind of 
incompleteness should be apparent here and there. To sim¬ 
plify what is essentially mixed and complicated; to devise 
a simple solution for a hundred intricate problems; to shape 
a definite plan out of a confusion of cross purposes; to 
make a single consistent garment out of multi-colored 
patches; to weave a myriad tangled threads into gorgeous 
vestiture for naked Truth; to build a habitable house out 
of rotten timbers;—these are the things that I have 
attempted to do in this book—and beside which the mani¬ 
fold labors of Hercules were as a series of playful diversions. 

While I have been at work on this volume during two 
whole years, every line was written after a full day’s work 
at other tasks had already been performed—written during 
the few free days and leisure hours and spare moments; on 
Saturday afternoons and Sundays and holidays, and nearly 
every day from after dinner until midnight, and beyond. 
Already tired and wearied from the regular day’s work, I 
often drove myself to the task I had set for myself. As I 
look back today I wonder how I did it without breaking 
down; and I do not hesitate to say that I should not care 
to repeat the performance. 

I purposely avoided moralizing, and reduced to a min¬ 
imum a strong natural tendency to philosophize. Nor did 
I make any attempt at fine writing, for Literature and Sta¬ 
tistics are incompatible, or at least contradictory terms. 
With almost rude violence I suppressed every inclination 
to indulge in flights of rhetoric, nor did I allow myself to 
engage in discursive dissertation merely for the sake of 
verbal pyrotechnics, preferring to sacrifice style for truth, 
form for substance, and picturesqueness for the one end in 
view—to make what I was writing comprehensible and in¬ 
teresting to the average man and woman. 


488 


The New Capitalism 


Statistics! Oh, yes! there are statistics! But remem¬ 
bering my own aversion to them long ago I used them spar¬ 
ingly, and only to whatever extent was necessary to illus¬ 
trate a point, establish a fact, demonstrate a principle, or 
justify a conclusion. For the same reason I have introduced 
a few statistical computations of my own. I shall not be 
surprised if my temerity in this regard will be met by gibes 
and jeers; and that I will be duly written down as an eco¬ 
nomic heretic or charlatan. Of one thing you may be sure, 
that those who will protest the loudest against any inde¬ 
pendent computations are the very ones who have for years, 
without so much as a whisper of objection, swallowed all 
the false, garbled and misleading statements and statistics, 
and upon which they have slyly built their arguments, or 
their fortunes. Those who do not find a single thing to 
criticise in the Capitalistic System will find much to con¬ 
demn in my book, and absolutely no virtue in my plan. 

I did not bother much about pretty terms for my plan; 
just ordinary words sufficed. I speak of the New Order in 
contradistinction to the old, or ‘ ‘ established, ’ ’ order, which 
is composed of a comparatively small number—a decided 
minority; whereas the majority is to be the constituency 
of the New Order. Through the potency of the New Order 
there is to come into existence the New Capitalism—as dif¬ 
ferent from the old or established Capitalism as night from 
day. The plan in its entirety I shall not object to become 
known as the Baldus Plan. The system of economics that 
can be developed out of it, might not inappropriately be 
called the Baldusian System , around the principles of which 
a truly Economic Commonwealth can be made to arise. 

I fully realize that I have fallen far short of a supreme 
human achievement, yes, even of my own expectations; 
nevertheless, there are a few things I want to say on 
behalf of my book and myself. 

In the first place, the writing of ‘ ‘ The New Capitalism ’ 5 
was primarily a labor of love, and as such I give it to the 
world. At the same time I have no delusions. I have lived 
too long to expect either gratitude or appreciation; and 
I have read enough of history to know that mankind rewards 


A Postscript 489 

its servitors with persecution, while society crucifies its 
saviors. , 

My second claim is that throughout the writing I have 
adhered steadfastly to the fundamentals. I may be in error 
with regard to some minor points entering into my theme, 
but as regards the fundamentals, I stand pat, and will not 
compromise. In defense of the fundamentals I’ll take, if 
need be, my solitary stand against the world. I say this in 
spite of the existence of that most pitiful and numerous 
breed of creatures, who in the conceit of their ignorance 
sweep aside principles that do not comport with their selfish 
notions—those intellectual and moral pigmies who would 
deny the proposition that 1 i man is a biped ’ 1 for the reason 
that they actually know a man who has only one leg, or no 
legs at all. 

But my chief and proudest claim is that I have been in 
earnest, and I hope I have succeeded in being fair. If there 
is an occasional vehement word, or a stentorian sentence, 
construe it as emphasis rather than vindictiveness, for I 
carry no malice against any man; nor is there in me bitter¬ 
ness against any human institution. I have the satisfying 
consciousness of knowing that from the beginning of this 
work to its completion this day, my intention has been 
sincere. 

To the many millions then—to those who are not a com¬ 
ponent part of the Capitalistic System, and never will be, 
I have this to say. On July 4, 1776—one hundred and 
forty-six years ago today, the Founders of our Republic 
declared their political Independence to the world. In that 
same year, Adam Smith published his famous book “The 
Wealth of Nations” (called by some “The Bible of Eco¬ 
nomics”) the principles and tenets of which have gone far 
towards holding the nations of the earth, including our 
own, in economic bondage and subjection. “The New 
Capitalism” is, as it were, your Declaration of Economic 
Independence. I have written and signed it; I can do 
no more. 


July 4, 1922. 


S. A. B ALDUS. 



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